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20 Cards in this Set
- Front
- Back
Microeconomics
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The study of how individual households and firms make decisions, interact with one another in markets
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Macroeconomics
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The study of the economy as a whole.
We begin our study of macroeconomics with the country’s total income and expenditure. |
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Gross Domestic Product (GDP)
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measures total income of everyone in the economy also measures total expenditure on the economy’s output of goods and services.
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total income equals total expenditure
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because every dollar a buyer spends is a dollar of income for the seller.
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Factors of production
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are inputs like labor, land, capital, and natural resources.
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Factor payments
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are payments to the factors of production. (e.g., wages, rent).
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Gross Domestic Product (GDP) Is…
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the market value of all final goods & services produced within a country in a given period of time.
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Goods are valued at their market prices, so:
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all goods measured in the same units (e.g., dollars in the U.S.)
Things that don’t have a market value are excluded (e.g. housework you do for yourself) |
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Final goods:
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goods intended for the end user
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Intermediate goods:
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used as components or ingredients in the production of other goods
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GDP only includes.
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final goods
tangible goods (like DVDs, mountain bikes, beer, etc.) intangible services (like dry cleaning, concerts, cell phone service, etc.). currently produced goods, not goods produced in the past |
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GDP time period
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usually a year or a quarter (3months)
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Four components of total spending:
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Consumption (C)
Investment (I) Government Purchases (G) Net Exports (NX) |
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GDP equation
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Y = C + I + G + NX
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Consumption
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Consumption is total spending by households on goods and services.
For renters, consumption includes rent payments. For homeowners, consumption includes the imputed rental value of the house, but not the purchase price or mortgage payments. |
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Investment
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Investment is total spending on goods that will be used in the future to produce more goods.
capital equipment, structures, inventories. not financial assets like stocks and bonds. |
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Government Purchases
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Government purchases is all spending on the goods and services purchased by government at the federal, state, and local levels.
excludes transfer payments, such as Social Security or unemployment insurance benefits because transfer payments are not purchases of goods and services. |
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Net Exports
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NX = exports – imports
Exports represent foreign spending on the economy’s goods and services Imports are the portions of C, I, and G that are spent on goods and services produced abroad. |
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Nominal GDP
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values output using current prices. It is not corrected for inflation.
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Real GDP
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values output using the prices of a base year. Real GDP is corrected for inflation.
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