Term
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Definition
| the market value of all final goods and services produced within a country in a given period of time. |
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Term
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Definition
| Expenditure. Every transaction has a buyer and a seller |
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Term
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Definition
| market prices..because market prices represent the value of goods (what people are willing to pay) at that point in time |
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Term
| Is GDP regarded as the best single measure of a society's economic well-being? |
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Definition
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Term
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Definition
| goods produced/sold illegally, items that are produced and consumed at home, and intermediate gods (the value of these goods is already included in the price of the good), transactions involving items produced in the past, items not produced domestically. |
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Term
| 4 different types of spending: |
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Definition
| consumption, investment, government, net exports |
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Term
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Definition
| (C) spending by households on goods and services. Includes durable and nondurable goods. DOESN'T INCLUDE purchases on new houses. |
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Term
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Definition
| (I) Spending on purchases of capital equipment, inventories, and structures. |
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Term
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Definition
| (G) this includes spending on goods and services by local, state, and federal gov'ts |
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Term
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Definition
| (NX) Exports minus imports. Imports are what we spend on foreign goods and exorst are what goods we sell to foreign countries. In a closed economy, we assume there isn't any international sector (NO TRADE) |
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Term
| If total spending rises from one year to next at least one of 2 things must be true.. |
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Definition
| either the economy is producing a larger output of goods and services or/and goods and services are being sold at higher prices |
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Term
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Definition
| the production of goods and services at CURRENT prices |
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Term
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Definition
| production of goods at some base year's prices |
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Term
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Definition
| measure the quantity of goods and services the economy is producing that isn't affected by changes in price. |
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Term
| Nominal GDP measures _________ where Real is adjusted for _______ |
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Definition
| actual current output; inflation |
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Term
| Over time, does GDP go up from one year to the next? |
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Definition
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Term
| Since prices go up (inflation), can we tell if output actually went up or if GDP just went up because goods are more expensive? |
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Definition
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Term
| If REAL GDP went up from one year to next, do we know that output actually increased, not just prices? |
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Definition
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Term
| Changes is real GDP reflect only: |
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Definition
| changes in the amount being produced |
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Term
| What is a nation's standard of living measured by? |
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Definition
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Term
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Definition
| periods of decline in real GDP |
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Term
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Definition
| is a price index that measures change in the level of prices from one year to the next |
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Term
| The percentage change in the GDP deflator from one year to the next is a measure of _____, |
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Definition
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Term
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Definition
| a situation where the overall level of prices is increasing |
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Term
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Definition
| Nominal GDP/real GDP * 100 |
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Term
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Definition
| Nominal GDP/ GDP deflator * 100 (manipulation of GDP deflator formula) |
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Term
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Definition
| Measures the overall cost of the goods and services bought by a typical consumer. |
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Term
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Definition
| purchasing power and inflation |
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Term
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Definition
| price of the basket of goods and services in a given year/price of the basket in the base year * 100 |
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Term
| CPI is used to monitor changes in.. |
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Definition
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Term
| The cost of living is the amount by which incomes must rise in order to maintain.. |
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Definition
| a constant standard of living. |
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Term
| When consumer price index rises, the typical family has to spend more or less dollars to maintain the same standard of living? |
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Definition
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Term
| Inflation rate equation for year Y |
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Definition
| CPI in year Y - CPI in Year X / CPI in year X * 100 |
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Term
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Definition
| income and interest rates for the effects of inflation |
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Term
| Value in year X dollars formula |
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Definition
| Value in year Y dollars * (CPI in year X/ CPI in year Y) |
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Term
| Real interest rate formula |
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Definition
| nominal interest rate-inflation |
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Term
| Problems with calculating CPI? |
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Definition
| Substitution bias, Introduction of new goods, and unmeasured quality change |
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Term
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Definition
| over time, some prices rise more than others so even if your income is increasing you are going to substitute towards goods that are less expensive. CPI doesn't acknowledge this and will overstate the increase in the cost of living (overstate inflation) |
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Term
| Introduction of new goods: |
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Definition
| increases the value of the dollar because prices decrease. The CPI is based on a fixed consumer basket and overstates the increase in the cost of living. |
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Term
| Unmeasured Quality Change: |
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Definition
| if the quality of a good rises, then the value of the dollar is rising even though prices stayed the same. CPI overstates inflation |
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Term
| How much does CPI overestimate inflation each year? |
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Definition
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Term
| GDP deflator is also a price index, like CPI..how are they Different? |
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Definition
GDP deflator is calculated using the prices of all goods and services produced domestically. CPI uses the prices of goods bought by consumers only, regardless where they were produced.
The GDP deflator is calculated each year where the CPI is only calculated when the Bureau of Labor Statistics chooses. CPI rises slightly faster than the GDP deflator because of substitution bias and the bias associated with the intro of new goods. |
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Term
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Definition
| the quantity of goods and services produced from each unit of labor |
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Term
| Productivity of a worker is determined by the available: |
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Definition
| physical capital per worker, human capital per worker, natural resources per worker, and technological knowledge |
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Term
| Productivity determines_______ |
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Definition
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Term
| Physical capital per worker= |
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Definition
| equipment and structures that are used to produce goods and services |
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Term
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Definition
| the knowledge and skills that workers acquire through education, training, and experience. |
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Term
| Natural resources per worker |
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Definition
| provided by nature: land, rivers, mineral deposits, etc. |
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Term
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Definition
| understanding about the best ways to produce goods and services |
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Term
| If the government wishes to raise productivity and increase the standard of living of its citizens, it should pursue_______oriented policies that promote/benefit growth. |
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Definition
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Term
| Outward oriented policies that promote/benefit growth are: |
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Definition
-Encourage saving and investment
-Encourage investment from abroad
-Encourage education
-Improve health and nutrition
-Protect property rights and establish political stability
-Encourage free trade (reduces trade restrictions)
-Encourage research and development |
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Term
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Definition
| business that is owned and operated by a foreign entity |
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Term
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Definition
| financed with foreign money but operated by domestic residents |
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Term
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Definition
| match up borrowers of money with lenders of money |
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Term
| 2 diff. categories of financial institutions |
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Definition
| Financial markets and financial intermediaries |
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Term
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Definition
| allow firms to borrow directly from those that wish to lend |
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Term
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Definition
| allows large borrowers to borrow directly from the public. Borrower sells a bond to a lender. |
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Term
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Definition
| allows large firms to raise funds by taking on additional owners of the firm. |
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Term
| If you buy stock in a company, do you own part of that company? |
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Definition
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Term
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Definition
| middlepersons between borrowers and lenders. Savers (lenders) can indirectly loan funds to borrowers. |
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Term
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Definition
| collect deposits from people (savers) and lend them to other people and businesses (borrowers). Banks pay interest to savers on their deposits |
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Term
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Definition
| sell shares to the public and use the proceeds to buy stocks and bonds |
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Term
| 2 categories in financial markets |
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Definition
| bond market, and stock market |
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Term
| 2 categories in financial intermediaries |
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Definition
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Term
| Saving is _____ to investment |
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Definition
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Term
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Definition
| Interest rate on Y-axis; Quantity of Loanable funds on the X-axis |
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Term
| Where does the supply of loanable funds come from? |
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Definition
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Term
| Moving up along the supply curve, real interest rate_____ |
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Definition
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Term
| Moving up along the supply curve, the quantity supplied of loanable funds are ________ |
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Definition
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Term
| You are a saver if your disposable income _______ your expenditures. |
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Definition
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Term
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Definition
| income left over after taxation |
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Term
| The demand for loanable funds comes from who? |
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Definition
| Households and firms that borrow money to invest. |
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Term
| As we move up along the demand curve, a higher real interest rate _____ the cost of borrowing money |
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Definition
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Term
| As we move up along the demand curve, a higher real interest rate increases the cost of borrowing money and _______ the quantity demanded of loanable funds. |
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Definition
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Term
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Definition
| your expenditures exceed your income |
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Term
| Factors that can shift the demand ad supply of loanable funds |
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Definition
| Reduced taxation on income, reduced taxation on investments, reduction in government debt and deficits, budget deficits, or budget surpluses. |
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Term
| If people are taxed less, they save more _______. |
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Definition
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Term
| Reduced taxation on income (graph shifts) |
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Definition
| Supply shifts to right; real interest rates fall and the quantity demanded of funds for investment increases. |
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Term
| Reduced taxation on investments (graph shifts) |
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Definition
| Increases desire to borrow money and invest and shifts demand curve to right. Raises real interest rate and increases the quantity supplied of funds. |
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Term
| Reduction in government debt and deficits |
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Definition
| more national saving is available and shifts the supply of funds to the right |
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Term
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Definition
| government spends more than they tax |
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Term
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Definition
| an excess of tax revenue over government spending |
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Term
| Budget surplus (graphing) |
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Definition
| increases supply, an increase in the deficit reduces national saving and shifts supply to the left. |
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Term
| Surplus of loanable funds (graphing) |
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Definition
| quantity supplied is greater than the quantity demanded and interest rates will fall to try and get back to equilibrium. |
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Term
| Shortage of loanable funds (graphing) |
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Definition
| quantity demanded is greater than quantity supplied and interest rates will rise to try to get back to equilibrium. |
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Term
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Definition
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Term
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Definition
| Total spending by households on goods and services |
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Term
| Does investment include the purchase of financial assets like stocks and bonds? |
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Definition
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Term
| Government spending excludes transfer payments such as... |
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Definition
| SS, medicare, disability payments, and unemployment insurance. |
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Term
| How is growth rate of economy computed? |
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Definition
| as percentage change in REAL GDP |
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Term
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Definition
| 100 x basket cost current year / basket cost base year |
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Term
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Definition
the percentage change in the CPI from the preceding period
CPI this year / CPI last year |
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Term
| Comparing dollar figures from different times formula |
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Definition
| Nominal value of year 1 x (CPI year 2 / CPI year 1 ) |
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Term
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Definition
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Term
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Definition
Y / L
y=GDP
l=quantity of labor |
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Term
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Definition
Y / L
y=GDP
l=quantity of labor |
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Term
| Physical capital per worker formula |
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Definition
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Term
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Definition
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Term
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Definition
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Term
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Definition
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Term
| Saving and Investment formula |
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Definition
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