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76 Cards in this Set
- Front
- Back
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Gross Domestic Product
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the total market value of all final goods and services produced within a given time period by factors of production located in the US.
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what does GDP stand for?
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Gross Domestic Product
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What does it include?
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1. Only includes final goods and services intermediate goods such as tires price of the car includes price of intermediate, tires 2. Only productive goods and services are counted non productive goods and services are not. Used cars. 3. Output produced abroad by domeswtically owned factors of production NOT INCLUDED because violates domestic.
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value added
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market value of a firms output plus the value of the inputs that it has purchased from others
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Not counted in GDP
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Anything that is purely financial transaction because nothing is produced. Sale of stocks or bonds not counted. However, if you use a stockbroker then whatever you pay him is counted because he provides a service.
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Private transfer payments
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not counted in GDP if you win the lottery or grandma gives you 1000 dollars cash no effect because there is no service
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Public transfer payments
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welfare payments, social security payments veterans payments interest paid on the public debt count?????
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Gross National Product
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The total market value of all final goods and services produced in a given time period factors of production owned by a countrys citizens regardless of where it has been produced. This has been eliminated which is bad because this is more accurate than GDP. Ex. Japanese company counts their GDP in ours but their cash goes to them.
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2 methods of calculating GDP
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Expenditure approach and income approach
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Expenditure approach
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looks at what was purchased/ We have to adjust because sometimes we sell stuff we produced last year or we don't sell everything we produce
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Income approach
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Measures the income (wages, rent, interest profits) received by all the factors of production in producing all of those final goods and services.
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Expenditure Approach has 4 elements
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1. Households (consumer) consumption C. 2. Firms Investment Ig (Gross Investment). 3. Government all forms (state, local, federal) G. 4. The rest of the world-net exports (exports-imports)
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Non durable good
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food, clothing, recession proof because even during a recession people have to eat used up w/in a year
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Durable good
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Something that lasts a long time. Car, dishwasher, heaters Big ticket items
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Services
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Dr. visits, lawn mowing, education
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Investment Gross Private Domestic Investment Total investment
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capital new housing plants equip, machinery, investment in physical capital not like stock market
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non residential investment
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machinery tools plant equip
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residential
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investment in new houses. Goes up in value and can be rented out. That's why it is included in residential not consumer
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Change in business inventories
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to adjust for things we made before or after. Marshall's is in this category
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GDP equation
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GDP=final sales + changes in inventories. This is to account for production not being equal to sales
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How to figure inventory
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inventory at the end of the year - inventory at the beginning gives the total increase
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gross and net
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gross is total, net is after you've taken stuff out
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net income Gross income
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capital depr is accounted for gross income fails to take into account the fact that capital depreciates over time.
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Net interest equation
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net interest=gross investment - depreciation
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govt. purchases include
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state local and fed govt. for final goods and services govt worker salaries, bombs, tanks. Welfare and interest expense govt transfer payments and social security payments NOT INCLUDED Federal transfer payments such as the bailout plan also not included
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Net exports
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exports-imports. Remember GDP is a measure of production measure of GDP is based on sales and sales don't equal production
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Export
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produced domestically so we want to count it but it's sold abroad so when adding up sales we would understate production because we would miss exports.
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import
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produced abroad and not counted in GDP so when adding they are in our sales but that would overstate GDP because they weren't produced here so subtract imports from exports
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Can we compare GDP? Why or why not?
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No we cannot because it doesn't take inflation into account
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Nominal GDP
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GDP measured in current dollars. Has to be adjusted to compare prices across time so we need a price index
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Real GDP
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Nominal GDP adjusted for inflation
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Real GPD equation
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Real GDP= nominal GDP/price index x 100
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Can we compare Real GDP? Why or why not?
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Yes we can because there are no more inflation.
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The business Cycle
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the ups and downs in GDP usually looking at changes in real GDP over time
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Peak
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Temporary maximums in level of econ activity
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Recession
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A period in which real GDP declines for at least 2 consecutive quarters (6 months)
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Depression
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a prolonged and deep recession
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recovery
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output and employment begin to go up prices may begin to rise
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How is unemployment calculated?
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the Beauro af labor statistics collects and reports unemployment once a month
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How could they measure it more accurately
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people filing for aid and assistance 2. people looking for work. 3. voter question. 4. census out that ais once every 10 years. 5. tax returns
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current population survey
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monthlky survey of 60000 houses said to be representative of the overall population has been used since the 1940's
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Noninstitutionalized population
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16 and over not in some institution, mental, hospital, prison, armed forces, placed into employed, unemploued, or not in labor force
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how to be counted as employed
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must be working ANY work for pay as little as an hour for pay or profit during the same week. All persons who did at least 15 hours of unpaid work in a family owned enterprise, or if you are temporatily absent from work due to vacation or illness you are still counted.
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Unemployed
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persons who did not work during the week at all. Made specific active efffort to find a job in the previous 4 weeks. You were available to work
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Active effort
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job interview, answering job adds, going to employment agencies, sending out resumes
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labor force equation
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labor force=employed + unemployed
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unemployment rate equation
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unemployment= number of unemployed / labor force *100
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labor force participation rate equation
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labor force /population (100)
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Layoffs
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all persons who were not working and were waiting to be called back to a job they have been laid off from work need not look for a job and are still counted in unemployment
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frictional unemployment
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The portion of unemployment due to the normal workings of the labor market used to denote short term job skill matching problems between jobs possibly, Economists not overly concerned
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Structural unemployment
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Portion of unemployment due to changes in the structure of the economy that results in certain industries. Longer run adjustment problems. Workers lose jobs because their skills are no longer needed. Economists not overly concerned
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Cyclical unemployment
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People who want to work and have skills who still can't find a job. Economists want this to be eliminated
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Natural rate of unemployment equation
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natural rate of unemployment = Structural + frictional
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Actual unemployment rate equation
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Actual rate of unemployment = frictional + structural + cyclical
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Shortcomings of unemployment rate
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1. part time workers are counted as fully employed when they want more hours understatement of employment. 2. Discouraged workers individuals who are unemployed but havae given up searching for a job,. understatement of unemployment
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Inflation
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a rise in the general level of prices. Some prices could be falling or staying the same but in general prices are going up
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Is inflation troublesome
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Depends on what happens to your income if your income rises at the same rate there is no problem
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Measuring Inflation
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Measured by consumer price index or CPI calculated by the bureau of labor statistics. It is used to inxex social security payments, adjust tax brackets, many pricate firms use it to index homes, land lords use it to index rent prices.
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How is inflation calculated?
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By taking 300 typical goods and services typically purchased by the urban consumer. THen they price it in each year the current year and the base year.
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CPI equation
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CPI= price of market basket in specific year prices/ price of same basket in base year prices times 100
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Problems
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sometimes prices go down People on social security aren't typical urban consumers
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Escalator clauses
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used to adjust payments or salaries for changes int he price level
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New amount=original amount-current year index/original year index
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a
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limitations of the CPI
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1. Market basked is for typical urban consumer not everyone is typical urban consumer. 2. can't show where it's more expeisive just where prices are rising faster. 3. quality changes are not accounted for. Such as comps were exp. now they do more and are cheaper
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Demant pull inflation
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Whole lot of demand price goes up. Too much money chasing not enough goods.
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Cost push
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Cost of production rises and supply goes down. It is more expensive to produce things.
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Losers of inflation
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1. Elderly because of fixed incomes. 2. Poor because fixed income. 3. Savers money not worth as much. 4. Creditors like banklending unanticopated inflation
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Winners of inflation
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1. debtors cause they pay back with dollar value down money 2. Flexible/adjustable incomes. 3. Government borrow dear dollars and pay back cheap dollars
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Losers
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elderly, those with fixed incomes, savers, creditors
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Winners
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debtors, adjustable incomes, Government
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GDP equation
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GDP=C+I+G+(Ex-Im)
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Y intercept is?
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consumption when your income is zero
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Marginal propensity to consume
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Slope of c function the proportion or fraction of any additional number that is spent.
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Marginal propensity to save
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slope of savings function- proportion of any additional income saved.
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MPC+MPS=
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0
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Non income determinants of Consumption
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Expectations of furture income and prices, wealth, interest rates, and household debt
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