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43 Cards in this Set

  • Front
  • Back
National Income Accounting
measures the economy's overall performance
What does National Income Accounting enable economists & policymakers to do?
1. Assess the health of the economy by comparing levels of production at regular intervals
2. Track the long-run course of the economy to see whether it has grown, been constant, or declined.
3. Formulate policies that will safeguard and improve the economy's health.
Gross Domestic Product (GDP)
primary measure of the economy's performance; annual total output of goods and services
What does GDP include?
only the market value of final goods (ignores intermediate goods altogether)
Intermediate Goods
goods and services that are purchased for resale or for further processing or manufacturing
Final Goods
goods and services that are purchased for final use by the consumer
Multiple Counting
including the value of intermediate goods in the GDP
value added
market value of a firm's out put less the value of the inputs the firm has bought from others
nonproduction transactions
purely financial transactions & second-hand sales
Types of purely financial transactions
* Public Transfer Payments - social security payments, welfare payments, veterans' payments
* Private Transfer Payments - money parents give children or cash gifts at Christmas
* Stock Market Transactions - buying and selling of stocks & bonds
expenditures approach
the sum of all the money spent buying the GDP - output approach
income approach
income derived or created from producing the GDP (earnings or allocations approach)
Personal Consumption Expenditures (C)
all expenditures by household (durable consumer goods, nondurable consumer goods, consumer expenditures for service)
Gross Private Domestic Investment (Ig)
* all final purchases of machinery, equipment, and tools by business enterprises
* all construction
* changes in inventories
net private domestic investment
investment in the form of added capital

net investment = gross investment - depreciation
Government Purchases (G)
1. expenditures for goods and services that government consumes in providing public services
2. expenditures for social capital such as schools and highways
Net Exports (Xn)
Net exports (Xn) = exports (X) - imports (M)
GDP (formula)
GDP = C + Ig + G + Xn
What makes up the national income?
1. Compensation of Employees
2. Rents
3. Interest
4. Proprietors' Income
5. Corporate Profits
6. Taxes on Production & Imports
Net Domestic Product
NDP = GDP - consumption of fixed capital
National Income
NI = NDP - Statistical Discrepancy - Net Foreign Factor Income
Personal Income
all income received whether earned or unearned
Disposable Income
personal income less personal taxes
Nominal GDP
unadjusted GDP
Real GDP
GDP that has been inflated or deflated to reflect changes in the price level
Price Index
a measure of the price of a specified collection of goods and services
PI (formula)
PIy = price of market basket in year y / price of same basket in base year X 100
Real GDP (formula)
nominal GDP / price index (in hundredths)
What does GDP leave out?
1. Nonmarket Activities
2. Leisure
3. Improved Product Quality
4. Underground Economy
5. Environment
Real GDP per capita
GDP / population size
rule of 70
states that we can find the number of years it will take for some measure to double
# years to double GDP
Approximate # of years required to double real GDP = 70 / annual percentage rate of growth
Main sources of GDP growth
1. increasing inputs of resources
2. increasing the productivity of the inputs
labor force
people who are willing and able to work
Unemployment Rate
Unemployment Rate = unemployed / labor force X 100
Types of Unemployment
1. frictional unemployment
2. structural unemployment
3. cyclical unemployment
frictional unemployment
workers who are either searching for jobs or waiting to take jobs in the near future
structural unemployment
changes in consumer demand and technology alter the structure of the demand for labor
cyclical unemployement
unemployment caused by a decline in total spending
full-employment rate of employment
the rate at which the economy is said to be producing at its potential output
GDP gap
the difference between actual GDP and potential GDP
Okun's law
for every 1% by which the actual unemployment rate exceeds the natural rate, a negative GDP gap of about 2% occurs
What causes unequal burdens of unemployment?
1. occupation
2. age
3. race & ethnicity
4. education
5. duration