Econ ch 12 – Flashcards
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National income accounting
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A dystem that collects macroeconomic statistics on production, income, investment, and savings
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Gross domestic product (GDP)
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The dollar value of all goods and services produced within a country In a given year
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Durable goods
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Consumer goods that last for a long time
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Depreciation
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Loss of value of capital equipment that results from normal wear and tear
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Price level
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The average of all prices in the economy
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Intermediate goods
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Products used in the production of final goods
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How do economists calculate GDP for one year using the expenditure approach?
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Add together all the amounts spent on final goods and services
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What is the difference between real GDP and nominal GDP?
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Real GDP is based on constant prices; nominal GDP is based on the current year's prices
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What is an example of a non durable good?
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Gasoline
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Why is real GDP more accurate than nominal GDP?
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It is adjusted for price changes
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What is one limitation of GDP?
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It does not measure health and happiness
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The calculation of GDP would include what?
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The income of a high school English teacher
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What is the rationale for the income approach to calculating GDP?
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The selling price of a good or service, minus the dollar value of intermediate goods and services, represents the sellers' income
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How is nominal GDP converted into real GDP?
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By eliminating the effects of price increases on GDP growth
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Real GDP divided by the total population is what?
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Real GDP per capita
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Business cycle
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A period of macroeconomic expansion followed by a period of contraction
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Economic growth
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A steady, long-term increase in real GDP
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Trough
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The lowest point in an economic contraction
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Peak
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The highest point in an economic expansion
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Recession
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An extended economic contraction
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Stagflation
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A decline in real GDP combined with a rise in inflation
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What typically happens to consumer and business spending when interest rates go up?
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Both types of spending decrease
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Which of the following was a lasting effect of the OPEC oil embargo in the 1970s on the US economy?
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More fuel efficient cars
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What are two things that usually happen when interest rates go up?
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Both consumers and businesses spend less money
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What is an example of a leading indicator?
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Interest rates and stock prices
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What was one result of the OPEC oil embargo during the 1970s?
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Stagflation
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A massive hurricane hits the United States, wiping out all industry along the Atlantic Coast. The event sends the economy into a downward spiral. In this case, economists would say the business cycle was influenced by what?
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External shock
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Economists try to predict changes in the business cycle by anticipating what?
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Movements in real GDP
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What is an illustration of how fears of the future economic problems affect GDP?
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Consumers will spend less and save money in case future economic problems affect them; GDP will be reduced
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Which is a factor in changing a business cycle?
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Interest rates
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How do fears about the future affect GDP?
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People spend less money; GDP falls
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How do consumer expectations affect the economy?
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If people expect the economy to begin contracting they may reduce their spending because they expect layoffs and lower incomes
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Real GDP per capita
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Real GDP divided by the total population
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Capital deepening
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Increasing the amount of capita per worker
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Technological progress
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Increased output without using more inputs
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Saving
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Income that is not spent
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Labor productivity
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Amount of output per worker
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Physical capital
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Equipment used to produce goods and services
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How can economist compare the standard of living in two different countries?
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By comparing real GDP per capita
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If the government uses tax revenue to pay for long-term investments such as roads or other infrastructure, what happens to the economy?
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Investment increases
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What is labor productivity?
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The amount of output produced per worker
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Why is real GDP per capita considered a more useful figure than real GDP?
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Real GDP per capita takes population into account
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What is one consequence of the low savings rate in the United States?
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Businesses have to borrow from other countries
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An example of capital deepening would be what?
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Paying for an employee to take college courses
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Savings accounts and investments such as mutual funds promote business expansion by ?
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Supplying funds that firms lend to businesses for capital investment
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Higher saving lead to higher GDP in the future because ?
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The invested money lends to higher output through capital deepening
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What is one way to measure technological progress?
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Total growth minus increases in capital and labor
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What is one thing that happens when the tax rate goes up?
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The government has more money to invest in infrastructure
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Explain how population, government, and foreign trade affect economic growth
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If population goes up and supply stays the same that is the standard of living. Government spending can encourage growth. Foreign - capital deepening or limit capital.
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How do you calculate GDP?
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C (consumers) x I (investment-business) x G (government) + X (net exports [exports-imports])
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How much percent does consumers account for in GDP?
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70%
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How much percent does Investment account for in GDP?
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16%
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How much percent does government account for In GDP?
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19%
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How much percent does net exports account for?
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-5%
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Non durable goods
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Those goods that last a short period of time, such as food, light bulbs, and sneakers
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Aggregate demand
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The amount of goods and services in the economy that will be purchased at all possible price levels
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Leading indicators
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A set of key economic variables that economists use to predict future trends in a business cycle
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Contraction
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A period of economic decline marked by falling real GDP
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Aggregated supply
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The total amount of goods and services in the economy available at all possible price levels
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Nominal GDP
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GDP measures in current prices
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Real GDP
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GDP expressed in constant, or unchanging, prices
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Gross national product
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The annual income earned by US owned firms and people
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Expansion
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A period of growth as measured by a rise in real GDP
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Depression
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A recession that is especially long and severe
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Savings rate
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The proportion of disposal income that is saved
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How does the economy grow?
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An increase in capital deepening, a higher savings rate, a population that grows along with capital growth, government intervention, technological progress
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What does GDP show about the nations economy?
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It measures the amount of money brought into a nation in a single year through the selling of that nations goods and services. It is a measurement of how well a nations economy is doing for a particular year. A high GDP means the nation is doing well. A low GDP means the nation is doing poorly.
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What factors affect the phases of a business cycle?
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Periods of economic growth, periods of economic decline, business investments, interest rates and credit, consumer expectations, external shocks
