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13 Cards in this Set

  • Front
  • Back
What is GDP?
Monetary measure of the total market value of final goods and services produced within a country in one year.
What does GDP count?
1. New domestic production
2. Final goods
What is excluded from new domestic production?
1. Exchanges of previously produced goods
2. Public transfer payments
3. Private transfer payments
4. The sale of stocks and bonds
What is excluded from final goods?
Intermediate goods - goods and services used as inputs for the production of final goods
What is the expenditures or output approach to GDP?
Consumption + Investment + Government Purchases + Net Exports
What is the income or allocations approach to GDP?
Wages + Rents + Profits + Statistical Adjustments
What are the shortcomings of GDP (what does GDP not measure)?
Useful output (homemakers' services, parental child care, volunteer efforts)

Improvements in product quality

Improved living conditions

Changes in distribution of income.

Underground economy

Environment

Non-economic sources of well-being
MPC
change in consumption/change in income
MPS
change in savings/change in income
What is the multiplier effect?
Changes in spending ripple through the economy to generate larger changes in real GDP
What is the formula for the multiplier?
Change in real GDP / Initial change in spending

OR

1/(1-MPC)
What is the formula for change in GDP?
Multiplier * Initial change in spending
What is aggregate demand?
shows the various amounts of real domestic output that domestic and foreign buyers will desire to purchase at each possible price level