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22 Cards in this Set

  • Front
  • Back
Macroeconomics
the study of economoy wide phenomena including inflation, unemployment, and economic growth
Gross Domestic Product (GDP)
The market value of all FINAL goods and services produced within a country in a given period of time

Does NOT include items produced in the past

Is DOMESTIC produced within borders of the U.S.

Does not include anything that is illegal--because the black market is hard to track
Market prices reflect the value of a good
true

if something is 2x as expensive as something else it will contribute 2x the amount the other good will to GDP
2 Primary ways to calculate GDP
1. Total Expenditures

2. Total Income
To understand how the economy is using its scarce resources GDP is broken down intow 4 categories
Y (GDP) = C + I + G + NX

C-Consumption
I-Investments
G-Government purchases
NX-Net Exports
Consumption
Spending by households on goods and services with the exception of purchase of new houses

Largest aspect of GDP
Investment
Spending on capital equipment, inventories, and structures, including Household purchases of new housing
Government Purchases
Spending on goods and services by local, state, and federal governments
Net Exports
Spending on domestically produced goods by foreigners (exports) MINUS spending on foreign goods by domestic residents (imports)

Exports - Imports = Net Exports
GDP measures the total spending on goods and services in all markets in the Economy.

IF total spending rises from one year to the next, at least 1 of 2 things must be true:
1. the economy is producing a larger output of goods and services

2. goods and services are being sold at a higher prices
Real GDP
The production of goods and services valued at CONSTANT prices



answers a hypothetical question: What would be the value of the goods and services produced this year if we valued these goods and services at the prices that prevalied in som specific year in the past?
Nominal GDP
The production of goods and service valued at CURRENT prices
Real GDP
helps us obtain a measure of the amount produced that is not affected by changes in prices

1. Designate a Base Year
Nominal GDP uses current prices to place a value on the economy's production of goods and services. Reald GDP uses constant base year prices to place a vlue on the economy's production of goods and services
true
Real GDP is a measure of the economy's production of goods and services
True

because it is NOT affected by changes in price (inflation)
GDP Deflator
A measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

GDP Deflator = [(Nominal GDP)/(Real GDP)] * 100
Because nominal GDP & Real GDP must be the same for the base year, the GDP deflator for the base year always equals 100
true
Inflation
when the economy's overall price level is rising
Inflation Rate
the % change in some measure of the price level from one period to the next
How do you calculate the inflation rate from one year to the next?
Inflation rate in yr 2 = (GDP deflator in year 2 - GDP deflator in year 1)/ GDP deflator in year 1 ] *100
Recession
Period in time when GDP declines
Total income = total expenditure in an economy?
true!

bc every transaction has a buyer & a seller