question

real GDP

answer

measures the value of final goods and services produced within the borders of a given country during a given period of time, typically a year (measured in constant dollars, aka GDP without inflation)

question

nominal GDP

answer

measures the dollar value of all goods and services produced within the borders of a given country using their current during the year that they were produced (differs from the other kind of GDP because this one is in current dollars)

question

which type of GDP is the appropriate measure one should use to determine changes in economic activity across time

answer

real GDP because nominal GDP captures both changes in output and changes in prices over time, meaning that nominal GDP may increase without any change in real economic activity

question

unemployment

answer

the state a person is in if he or she cannot get a job despite willing to work and actively seeking work

question

inflation

answer

an increase in the overall level of prices

question

savings

answer

generated when current consumption is less than current output

question

investment

answer

resources are devoted to increasing future output

question

financial investment

answer

captures what ordinary people mean when they say investment, namely the purchase of assets like stocks, bonds, or real estate in the hope of reaping financial gain

question

economic investment

answer

only includes money spent purchasing newly created capital goods such as machinery, tools, factories, and warehouses; this is what economists mean when they refer to investment

question

households are the principal source of savings or investors

answer

savings

question

businesses are the main economic investors or savers

answer

economic investors

question

inflexible prices aka "sticky prices"

answer

help explain how unexpected changes in demand lead to fluctuations in GDP and employment, which is referred to as the business cycle

question

real gross domestic product will increase if there is an increase in the...

answer

level of output

question

suppose that real GDP increases by 5% while the population of a country increases by 7%. then output per person necessarily...

answer

decreases

question

in economics, the word shocks refers to

answer

situations where firms' expectations are unmet

question

higher oil prices are most likely to lead to a positive or negative ____ shock

answer

a negative supply shock

question

what is true about advanced economies

answer

economies experience a positive growth trend over the long run, but experience significant variability in the short run

question

before the period of modern economic growth, rates of population growth virtually____ rates of output growth

answer

matched

question

if an economy wants to increase its current level of investment, it must...

answer

sacrifice current consumption

question

how does national income accounting measure the economy's performance

answer

by measuring the flows of income and expenditures over a period of time

question

GDP

answer

the monetary measure of the total market value of all final goods and services produced within a country in one year; what has been produced in the economy over the year, not what was actually sold

question

intermediate goods aka semi-finished products

answer

goods , such as partly finished goods, used as inputs in the production of other goods including final goods

question

does GDP keep intermediate goods

answer

no because intermediate goods would overstate GDP

question

does GDP keep purely financial transactions like public transfer payments, private transfer payments, and the sale of stocks and bonds

answer

no

question

are brokers' fees included in GDP

answer

yes; for services rendered

question

two ways to look at GDP

answer

what is spent on a product is income to those who helped to produce and sell it this is an important identity and the foundation of the national accounting process

question

expenditures approach

answer

GDP = C + Ig + G + Xn

question

categories of buyers in the market

answer

household consumers, businesses, government, and foreign buyers

question

C

answer

personal consumption expenditures; includes durable goods, nondurable goods, and services

question

Ig

answer

gross private domestic investment all final purchases of machinery, equipment, and tools by businesses all construction (including residential) changes in business inventory noninvestment transactions - only newly created capital is counted as investment net private domestic investment (In)

question

net private domestic investment (In)

answer

as output is being produced, existing capital equipment is wearing out and buildings are deteriorating (aka consumption of fixed capital) gross investment minus depreciation is called net investment when gross investment and depreciation are equal, a nation's productive capacity is static gross investment is less than depreciation, an economy's production capacity declines

question

G

answer

government purchases of consumption goods and capital goods

question

Xn

answer

net exports; exports minus imports (can be positive or negative number)

question

income approach

answer

demonstrates how the expenditures on final products are allocated to resource suppliers as income

question

parts of income approach

answer

compensation of employees rents: payments for supplying property resource (Adjusted for depreciation it is net rent) interest: payments from private businesses to suppliers for money capital proprietors' income: income of incorporated businesses, sole proprietorships, etc. corporate profits: dividends are distributed to shareholders after corporate income taxes are paid to government, and the remainder is left as undistributed corporate profits (aka retained earnings) taxes on production and imports the sum of above entries equals national income

question

national income

answer

all income earned by American supplied resources, whether here or abroad, plus taxes on production and imports

question

GDP doesn't measure some very useful output because it is...

answer

unpaid (homemakers' services, parental child care, volunteer efforts, and home improvement projects)

question

GDP doesn't measure improved living conditions as a result of more...

answer

leisure

question

GDP does not measure improvements in product quality or make allowances for...

answer

increased leisure time

question

the Underground Economy

answer

illegal activities are not counted in GDP (8% of the US GDP); legal economic activity may also be part of the underground, usually in an effort to avoid taxation

question

GDP and the environment

answer

the harmful effects of pollution are not deducted from GDP

question

so what does GDP include in terms of the environment?

answer

payments made for cleaning up oil spills, and the cost of health care for the cancer victim

question

noneconomic sources of well-being like courtesy, crime reduction, etc are covered or not covered in GDP

answer

not covered

question

real GDP measures current or base year output and current or base year prices

answer

current output and base year prices

question

real GDP and nominal GDP differ because the real GDP...

answer

has been adjusted for changes in price level

question

a consumer price index attempts to measure changes in

answer

the price of a select market basket of goods and services

question

the rule of 70

answer

uses the absolute value of a rate of change, divides it into 70, and the result is the number of years it takes the underlying quantity to double

question

main sources of growth

answer

increasing inputs or increasing productivity of existing inputs

question

real GDP has increased over how much since 1950

answer

six fold

question

real per capita GDP has risen over...

answer

threefold

question

rate of growth record shows that real GDP has grown about ___ percent per year since 1950

answer

3.2%

question

real GDP per capita has grown about how much percent per year

answer

2%

question

institutional features that promote and sustain modern economic growth

answer

1. strong property rights 2. patents and copyrights 3. efficient financial institutions 4. literacy and widespread education 5. free trade 6. competitive market system

question

determinants of growth (supply)

answer

1. quantity and quality of natural resources 2. quantity and quality of human resources 3. the supply or stock of capital goods 4. technology

question

determinants of growth (demand)

answer

1. aggregate demand must increase for production to expand 2. full employment of resources and both productive and allocative efficiency are necessary to get the max amount of production possible

question

increases in the value of a product to each user, inc existing users, as the total number of users rises are called

answer

network effects

question

critics of economic growth argue that economic growth does not resolve what type of problems?

answer

socioeconomic problems such as unequal distribution of income and wealth

question

what's the US's economic growth trend

answer

long-run economic growth has been interrupted by periods of instability; uneven growth

question

four phases of the business cycle

answer

peak, recession, trough, recovery

question

peak

answer

temporary maximum with full employment and near-capacity output

question

recession

answer

decline in total output, income, employment, trade lasting six months or more

question

trough

answer

bottom of recession period

question

recovery (aka expansion)

answer

when output and employment are expanding toward full-employment level (aka peak)

question

durable goods are more what than non-durables and services

answer

volatile

question

theories about causation

answer

major innovations trigger new investment and/or consumption spending changes in productivity monetary factors political events financial stability level of aggregate spending

question

unemployment rate is defined as...

answer

the percentage of the labor force that is not employed (includes those age 16 and over who are willing and able to work, and actively seeking work)

question

shortcomings of unemployment rate

answer

part-time workers are counted as employed and discouraged workers who want a job but are not actively seeking one are not counted as being in the labor force, thus they are not part of the unemployment statistic

question

frictional unemployment

answer

those searching for jobs or waiting to take jobs soon (most desirable because there is mobility)

question

structural unemployment

answer

due to the changes in the structure of demand for labor; when certain skills become obsolete or geographic distribution of jobs changes

question

cyclical unemployment

answer

caused by the recession phase of the business cycle; as firms respond to insufficient demand for their goods and services, output and employment are reduced

question

full employment

answer

doesn't mean zero unemployment; the full employment rate of unemployment is also referred to as the natural rate of unemployment; equal to frictional and structure unemployment

question

the natural rate of unemployment is not fixed by depends on the...

answer

demographic makeup of the labor force and the laws and customs of the nations

question

natural rate has dropped from...

answer

six percent to five percent to six percent as demographic factors, job search methods, and public policies change

question

what is the natural rate

answer

achieved when labor markets are in balance; the number of job seekers equals to the number of job vacancies

question

unequal burdens of employment include...

answer

rates are lower for white-collar workers, teenagers have higher rates, african-americans have higher rates than whites, rates for males and females are comparable historically, less educated workers have lower rates, and long term unemployment rate is much lower than overall rate but it has nearly tripled from 2007 to 2009

question

consumer price index (CPI)

answer

main index used to measure inflation; subtract last year's price index from this year's price index and divide by last year's index, then multiply by 100 to receive a percentage

question

demand-pull inflation

answer

spending increases faster than production; "too much spending chasing too few goods"

question

cost-push or supply-side inflation

answer

prices rise because of rise in per-unit production costs (unit cost = total input cost/units of output); output and unemployment decline while the price level is rising

question

supply shocks

answer

major source of cost-push inflation; typically occur with dramatic increases in the price of raw materials or energy

question

core inflation

answer

used to prevent misinterpretation of the changes in the CPI that might be due to temporary changes in supply and demand; economists should be concerned if core inflation increases

question

who is hurt by inflation

answer

fixed income groups because their real income suffers, savers because their savings will lose purchasing power, lenders because the money debtors are paying back are "cheap" dollars that have less purchasing power for the lender

question

who can be helped by inflation

answer

debtors because "cheaper" dollars

question

when would real income rise (example)?

answer

ex. nominal income rises by 2 percent, and the price level remains unchanged

Melchor Economics Ch 24-27 – Flashcards

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