Macro Midterm 1

Front 1

GDP

Back 1

measure of all currently produced FINAL G&S's

Front 2

Capital Goods

Back 2

capital recourses such as factories and machinery used to produce other goods

Front 3

Depreciation

Back 3

portion of the capital stock that wears out each year

Front 4

Consumption

Back 4

household sector's D for output for current use

Front 5

Investment

Back 5

part of GNP purchased by the biz sector + residential construction

Front 6

Gov Purchases

Back 6

G&S's that are part of current output that goes to the Gov sector
*all levels of Gov: Fed, State, & Local

Front 7

Net Exports

Back 7

total gross exports - imports

Front 8

National Income

Back 8

sum of earnings of all factors of production that come from current production

Front 9

Net National Product

Back 9

GNP - depreciation

Front 10

Personal Income

Back 10

measure of income received by persons from all sources

Front 11

National Income Accounting Identities

Back 11

the interrelationships among GDP, GNP, NI, & PI from the basis for some accounting definitions or identities that are used to construct models

Front 12

NIA Simplifications
1.

Back 12

Foreign Sector is omitted.
This means:
1. Drop Net Exports in terms of GDP
2. & the Net Foreign Transfers item from PI
3.exclude foreign earnings of US Firms & Citizens
4. exclude US earnings of Foreign Firms & Citizens
5. Thus, GNP = GDP
*& are interchangeable

Front 13

NIA Simplifications
2.

Back 13

1. Indirect Taxes & other discrepancies between GNP & NI are ignored
2. Assume NI & NP or or output are the same.

Front 14

NIA Simplifications
3.

Back 14

Depreciation is ignored (except when explicitly noted)
*Therefore gross & net national product are the same.

Front 15

NIA Simplifications
4.

Back 15

1. Several simplifications are made between NI & P (disposable) I
2. there are no retained earnings or corporate tax payments, and there is no valuation adjustment.
3. Assume that all taxes , including SS contributions, are assessed directly on households
4. Biz transfer payments are ignored
5. Consequently we can specify PDI as Ni (or output) - Tax payments (Tx) + Gov Transfers (Tr), which include Gov interest payments.

Front 16

NIA Simplifications
5. (Net Taxes [ T ])

Back 16

Net Taxes (T) = tax payments - transfers

T = Tx - Tr

Front 17

NIA Simplifications
6. (PDI [ Yd] = NI [ Y ] - T)

Back 17

Yd = Y - Tx + Tr = Y - T

Front 18

NIA Simplifications
7. GDP or GNP is defined as:
* interchangeable

Back 18

Y = C + Ir + G
C = consumption
Ir = realized investment
G = Gov purchases of G&S's

Front 19

NIA Simplifications
8. Income Side
*keeping assumptions 1-4 & ignoring interest paid to biz

Back 19

Yd = Y - T = C + S

Front 20

NIA Simplifications
9. PDI, which = NI (Y) - T
Net Tax payments: T = Tx - Tr
C: consumption expenditures or personal savings (S)

Back 20

Y = C + S + T

Front 21

NIA Simplifications
10. b/c Y is both NI & output, we can combine:

Back 21

C + Ir + G = Y = C + S + T

Front 22

NIA Simplifications

Back 22

Expenditures on GDP (C+Ir+G) must by definition be = to the dispositions of NI (C+S+T) & will be useful in the construction of the Keynesian macro model

Front 23

Nominal GDP

Back 23

GDP measured in current dollars
*changes whenever the Q of goods produced changes or when the market price of those goods changes

Front 24

Real GDP

Back 24

measures output in terms of constant prices from a base year
*only changes when production changes
*Real GDP = Nominal GDP/ GDP Deflator

Front 25

Price Index

Back 25

measures the aggregate price level relative to a chosen base year

Front 26

Implicit GDP Deflator

Back 26

index of the prices of G&S's included in GDP
*measures price changes between two years, neither of which is the base year

Front 27

GDP Deflator Equation

Back 27

GDP Deflator = Nominal GDP/ Real GDP

Front 28

Consumer Price Index (CPI)

Back 28

measures the retail prices of a fixed "market basket" of several thousand G&S's purchased by households

Front 29

Producer Price Index (PPI)

Back 29

measures the wholesale prices of approximately 3000 items

Front 30

Potential Output

Back 30

level that would be reached if productive resources (labor & capital) were being used at benchmark high levels

Front 31

Substitution Bias

Back 31

CPI measures prices of "baskets", w/ the weights to each category fixed in a base year.
*Weights are based on a survey that happens every 10 yrs
*within the 10 yrs relative prices change and consumers shift away from items w/ whose relative prices rise to those that decline

Front 32

Monetary Policy

Back 32

central bank's use of control of the money supply and interest rates to influence the level of economic activity

Front 33

Money

Back 33

whatever is commonly accepted as payment in exchange for G&S's (and payments of debts)