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60 Cards in this Set

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GNP
(Gross national product): counts what is made by American owned businesses in all countries around the world but not foreign companies in the USA.
GDP
gross domestic product: the total market value of all final goods and services produced w/i a country in a given year (includes all domestic and foreign owned production in a country), measure of value (total market value measured in dollars)
Final goods and services
goods and services sold to the end user, last in chain
GDP EXCLUDES
1) Public transfer payments (money moved from one area of society to another), it is instead counted as income. Ex: SS, medicare, welfare, college grants
2) private transfer payments ex: gifts and allowances
3) stock market and other financial transactions
4) used goods
all these are in category called NON productive transactions
Recession
If GDP is negative for 2 consecutive quarters
Expenditure Models (output)
Consumption (C) + investment (Ig) + gov purchases (G) + net exports (Xn) = GDP
consumption
spending by individuals or house holds (largest category of GDP)
durable goods (last >3) + non durable goods (last < 3) + services
Investment
Expenditures for new produced capital goods and for additions to inventories (all final purchases of machinery and equipment) ex: carpenter buys hammer
All construction ex: factories, roads, houses
Changes in inventory: goods that have been produced but remain unsold (catch is that when good is sold it is counted in GDP for year it was made, ex: made in 2007 but sold in 2009, it is counted as 2007 GDP)
depriecation
estimate of the amount of capitol warn-out or used up in producing GDP
net exports
exports - imports
net investment
Ig - deprecation
Income model
W + R + I + P = GDP
(What we earn)
Profit
1)corporate income tax
2)dividends (share of profits distributed to share holders)
3)undistributed corporate profits (leftovers kept)
national income
w + R + i + P
statistical adjustments for national income equation
1)Indirect business tax (sales tax which is the source for how much stuff we sell)
2)Depreciation
3)Net foreign factor income
National Domestic Product
what was brand new
NDP
GDP - Depreciation
National Income
NDP - Indirect Business Tax - Net Foreign Factor Income (NFFI)
Personal Income
national income - corp income taxes - undistributed corp profits - SS
Disposable Income
personal income - personal income tax
nominal gdp
gdp measured in current dollars
real gdp
gdp adjusted for the price change (inflation/deflation)
Price Index Equation
(Price of Market Basket in specific year/price of market basket in base year) X 100
price index
measure of the price ofa specific collection of goods and service (market basket) in a given year compared to the price of an identical collection of goods and services in a basea year
GDP deflator
price index for gdp
consumer price index
consumer goods, what we use everyday
Real GDP
real gdp/price index (in hundredths)
short comings of gdp
GDP isn’t a perfect measurement
1)use GDP to compare countries but is limited (better to use PPP or GDP per capita)
2)Misses the underground economic economy ex: illegal activities or babysitting
3)Doesn’t measure non-market transactions
(side note #2 & 3, poorer the country the more likely less of all GDP counted)
4)Doesn’t measure improved product quality
5)Doesn’t measure well being ex: leisure, psychic income non-monetary satisfaction from a job)
6)Doesn’t count externalities (unintended consequences from which you bare no cost, ex: pollution)
7)Doesn’t count contributions and distributions of goods, ex; different forms of governments.
Buisness cycle phases
peak, trough, expansion recession/contraction
Peak
full employment, gdp near capacity, prices usually rising
contraction/recession
gdp declining, prices go down
trough
gdp and employment are bottoming out
expansion
gdp and employment are increasing
Reasons for Business Cycle
1)Relationship between capacity and prices
Excess capacity means room to grow without higher prices
No more capacity + lay off workers
2)technological advancement
ex: railroads, internet
unemployment rate
# of unemplyed/labor force
labor force
number of people willing/able to work
discouraged workers
given up trying to find work b/c not finding employment for a long time
types of unemployment
frictional, seasonal, structural, cyclical
frictional unemployment
natural rate of unemployment, full unemployment rate are about 5%, people will be unemployed naturally b/c of influx
seasonal unemployment
farmers, water parks
structural unemployment
permanent unemployment, job not coming back
cylical unemployment
related to business cycle
GDP gap
difference between actual GDP and potential GDP
Okun's Law
for every 1% of unemployment above the natural rate, there is a 2% loss in gdp
inflation
general rise in price level
(decreases the value of money)
deflation
general decline in price level
Rate of inflation
{(current price level - previous price level)/ previous years price leve} X 100
types of inflation
demand pull, cost push
demand pull
caused by rising demand (denabd around the world keeps rising)
cost push
caused by rising resource prices, if rise is caused by supply shock
supply shock
(unintended/unanticipated serious increase in resource prices)
Affects of Inflation
nominal income, real income, nominal interest, real interest
nominal income
in real dollars (nominal is current dollars)
real income
income adjusted for price change
real income equation
nominal income/price level
nominal interest rates
in real dollars
real interest rate
interest rate adjusted for price change
Real interest rate equation
nominal interest rate - inflation rate
People hurt by inflation
people with fixed incomes, savings, and lenders/creditors
people helped by inflation
people with COLA (cost of living adjustment)and borrowers