# Shared Flashcard Set

## Details

Macro Economics test 2
Macro Economics test 2
83
Economics
02/16/2011

Term
 Gross domestic product (GDP) is defined as the total market value (\$) of all final goods and services produced within a country during a period of time.
Definition
 is defined as the total market value (\$) of all final goods and services produced within a country during a period of time.
Term
 By period of time,
Definition
 we mean GDP is calculated over a year or quarter (i.e. 3 months).
Term
 By final goods and services we mean
Definition
 we count only the market value of goods and services purchased by a final user (not the market value of intermediate goods).
Term
 An intermediate good or service is a good or service that does represent some production but is used as an input into the production of another good or service.
Definition
 For example, a tire put on a truck at the assembly line is an intermediate good.When the entire truck is sold by a dealer to a consumer (the final user who will simply drive the truck), then the entire truck is now a final good.
Term
 By total market value we mean GDP is reported as a dollar amount, not as a total amount of stuff (even though GDP is supposed to be a measure of total production).
Definition
 GDP can be conceptualized as a sum of multiplications of quantities times prices.
Term
 GDP IS MEASURED USING MARKET VALUES (\$\$\$), NOT QUANTITIES
Definition
 Even though GDP is supposed to be a measure of total production, it is NOT reported as a total quantity of stuff produced but as the total market value of the total quantity of all the stuff produced.
Term
 GDP IS THE TOTAL MARKET VALUE OF FINAL GOODS & SERVICES
Definition
 Intermediate goods aren’t counted because that would lead to multiple-counting the same production – we will understand this better when we consider the value-added approach later on.
Term
 GDP INCLUDES ONLY CURRENT PRODUCTION DURING THE YEAR
Definition
 (we are after total production for the year, not total sales for the year)Stuff produced last year sold this year doesn’t count in this year’s GDP.Stuff produced this year, sold, and then re-sold as “used” during the same year; gets counted only once for the year.
Term
 GDP INCLUDES ANY PRODUCTION WITHIN A COUNTRY’S BORDERS
Definition
 (regardless of whether the company is domestic or foreign)So a car built in the US by KIA counts in GDP for the US, but not in GDP for South Korea.
Term
 4 ways to maeasure GDP
Definition
 1) Total market value of all final goods and services2) Total spending on final goods and services3) Total Value added =total produciton 4) total income=total production
Term
 Final goods counts the production at each-
Definition
 level of production
Term
Definition
 production of each intermediate good and service of final good.
Term
 all value added gets distributed as
Definition
 income 1. Rent 2. interest 3. wages 4. profit
Term
 GDP--> Total Market vlaue of all final goods and services---> Total Spending on final Goods and service---> Total value added---> total income
Definition
Term
Definition
 The difference between how much we pay for the ingredients used to make something, and how much we sell what we make out of those ingredients, is called
Term
Definition
 value-added is a dollar amount that represents the amount of production that has taken place during the productive process that transformed those ingredients into something else.
Term
 The first step in the production process has no value added
Definition
 The sheep from the farmer has no value added only from the farmer to the wool processer is it then considered value-added
Term
 All value added will be distrubuted as income
Definition
 1. rent 2.wages 3.interest 4. profit
Term
 that the total market value of all final goods & services equals total spending on all final goods & services.
Definition
 One of the two ways that GDP is actually accounted for (also known as total production)  Although there are four methods only two are used by the national income accountants. 1. total market value of final goods and services 2. Total spending on final goods and service 3. Total of all value added 4. total income
Term
 total value-added equals total income, but total value-added equals total production, so total income equals total production.
Definition
 Total income is the other way they actually use to count GDP
Term
 [image]
Definition
 GDP Economic flow
Term
 net exports as Xsubn
Definition
 (aka X – M where X stands for exports and M stands for imports)
Term
 In national income accounting, investment expenditure is spending on capital goods only
Definition
 This is refereing to businesses and they only spend on Capital goods.
Term
 Unlike land, labor, & entrepreneurial ability, capital goods are produced by firms in the U.S. economy
Definition
 In addition, capital goods are final goods to business because business is the final user of capital goods
Term
 But spending by government on capital goods is counted as part of
Definition
 government expenditure)
Term
 Personal Consumption Expenditure (which we will abbreviate as “C”)
Definition
 Abrivated as "C"
Term
 Investment Expenditure (abbreviated as “Ig” or “I” and called Gross Private Domestic Investment)
Definition
 Gross Private Domestic Investment (captial only)
Term
 Govt Expenditure (which we will abbreviate as “G” and call Government Purchases)
Definition
 "G" Government purchases
Term
 Net Exports (which we will abbreviate as “Xn” or “X – M”)
Definition
 Net exports X=exports n=net
Term
 [image]
Definition
 C= personal Consumption expenditures I (sub) g= gross private dosmestic investmentG= government Expentiture or purchases x sub n = Net Exports
Term
 Exports are final goods and services produced in the United States but sold to foreigners.Since exports is spending by foreigners only on US-produced goods & services, and GDP counts all final-good sales of US-produced goods & services, exports definitely count as part of US GDP.
Definition
Term
 national income accounting scheme, investment expenditure is spending on capital goods only (i.e. investment is spending on capital only
Definition
 On Capital goods only by business = I (sub)g
Term
 “consumption of fixed capital” gets “siphoned-off” GDP and “sent” right back to U.S. businesses…
Definition
 Depreciation
Term
 gross private domestic investment Ig is greater than consumption of fixed capital
Definition
 If Ig > consumption of fixed capital,then the economy increases
Term
 gross private domestic investment Ig is less than consumption of fixed capital, then the amount of capital at the end of the year is smaller than the amount of capital at the beginning of the year:
Definition
 Ig < consumption of fixed capital,then the economy decreases
Term
 gross private domestic investment Ig is equal to consumption of fixed capital, then the amount of capital at the end of the year is equal to the amount of capital at the beginning of the year:
Definition
 Ig = consumption of fixed capital,then the economy neither increases nor decreases
Term
 [image]
Definition
 Grooss domestic investment flow is made up CFC (consumption Fixed capital) UCP= undeistributed corparate profits (stock dividends)S= Savings from households that turn into loans from banks
Term
 [image]
Definition
 I (sub)g= CFS + ((((UCP + S)))))
Term
 net private domestic Investment, or often just called net investment, and abbreviated as I(sub) n:
Definition
 I (sub) n = Undistributed corpation profits + Savings (UCP +S)
Term
 Ig = CFC + In
Definition
 gross private domestic investment = Consumption of Fixed Capiatl + Investmetn net
Term
 CFC= Consumption of Fixed Captial
Definition
 remeber that this is only replacement if not replaced then the I(sub)g will decrease
Term
 If In > 0then the economy increases
Definition
Term
 If In < 0then the economy decreases
Definition
Term
 If In = 0then the stock of capital in the economy neither increases nor decreases
Definition
Term
 intermediate good or service is a
Definition
 good or service that does represent some production but is used as an---- input---- into the production of another good or service
Term
 GDP can be conceptualized as a sum of multiplications of quantities times prices.
Definition
 as a sum of multiplications of quantities times prices.
Term
 sale (which from the buyers viewpoint is
Definition
 an expenditure
Term
 distrubuted as income Land= labor= Capiital= Entreprenuer ability=
Definition
 land =rentlabor=wagesCaptial=interstEntreprenuer ability=Profit
Term
 But any government spending on land, labor, & entrepreneurial ability and any business spending on land, labor, and entrepreneurial ability
Definition
 will not be counted towards GDP because, unlike capital, these resources are not a final good or service produced by firms in the economy.
Term
 But capital goods are final goods to businesses and to the government (when it acts like a business
Definition
Term
 [image]
Definition
 Total expenditures =GDP = Total Income
Term
 “Depreciation” is
Definition
 just a fancy accounting term that refers to the “using-up” of capital.
Term
 “consumption of fixed capital” gets
Definition
 “siphoned-off” GDP and “sent” right back to U.S. businesses…
Term
 “replaced” “consumption of fixed capital” =
Definition
 then the net change in the amount of capital in the economy is zero.
Term
 If U.S. businesses spend more to replace capital =
Definition
 (more production) than the value of the amount of capital that was used-up over the year, then we end-up with more capital at the end of the year than we did at the beginning of the year.
Term
 But if U.S. businesses spend less to replace capital =
Definition
 (less production) than the value of the amount of capital that was used-up over the year, then we end-up with less capital at the end of the year than we did at the beginning of the year.
Term
 [image]
Definition
Term
 So, the part of Ig (the part made-up of UCP+S) that increases the total stock of capital in the economy (unlike the part that just pays for depreciation which consists of CFC), is private domestic investment without the “gross” prefix, or just net private domestic Investment, or often just called net investment, and abbreviated as In:
Definition
 This means that only ucp + s (Isub n) increases total stock of capital in the economy
Term
 Net Domestic Product or NDP. =
Definition
 GDP minus CFC (consumption of fixed capital (depreciation)
Term
 NDP (national dosmetic product) represents
Definition
 incomes earned within US borders.
Term
 NDP + Foreign Factor income( income earned by Americans, regardless of whether they earned the income in the US or outside of the US.) =
Definition
 National Income (NI)
Term
 Nominal values are values for which the effects of price changes (e.g. higher prices) have not been factored-out.
Definition
 Contains inflation from the rise of prices
Term
 Real GDP =
Definition
 Nominal GDP divided by the GDP deflator (which was the GDP reported by the Marcorecomists divided by 100)
Term
 “GDP Deflator”,
Definition
 divide something called the “GDP Deflator reported by macroeconomists”, by 100.
Term
 [image]
Definition
 Work force I. Labor force II.not in labor forceA)employed B)Unemployed A) Avalable B)Not Available 1.Frictional 2)Structrual 3) Cyclical
Term
 Unemployment rate =
Definition
 unemployed divided by labor force time 100
Term
 Types of Unemployment
Definition
 Frictional UnemploymentStructural UnemploymentCyclical Unemployment
Term
 Frictional Unemployment
Definition
 Short-term unemployment arising from the process of matching workers with jobs (or workers matching themselves with jobs). This unemployment is short-term because workers sometimes voluntarily refuse to take a job (“drag their feet”, which creates “friction”) because they do not believe the job matches their qualifications (or specifications); but they always eventually take a job offer.""Cherry Pickers""
Term
 Structural UnemploymentLong-term unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs. This unemployment is long-term because workers are sometimes involuntarily unemployed when the skills they possess are no longer needed (obsolete); and these workers need to be re-trained (which takes time
Definition
 Long-term unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs. This unemployment is long-term because workers are sometimes involuntarily unemployed when the skills they possess are no longer needed (obsolete); and these workers need to be re-trained (which takes time ""Obsolete""
Term
 Cyclical Unemployment
Definition
 Unemployment caused by a business cycle recession. This kind of unemployment occurs because the economy has not generated a large enough number of jobs to employ all those who want to work and are looking for work.
Term
 The Natural Rate of Unemployment
Definition
 The rate of unemployment consisting of the sum ofthe structural rate of unemployment plusthe frictional rate of unemployment
Term
 When the economy is at a peak the Cyclical employment is equal to zero
Definition
 Which means the U (unemployment is equal to Natural Rate because the U= NR+C
Term
 Actual GDP =
Definition
 real GDP
Term
 Actual real GDP =
Definition
 potential real GDP (if is ON the production possibility curve and not below it(((inside the curve))
Term
 think of Potential Real GDP is
Definition
 as “the level of real GDP that the economy would produce if it were operating on it’s production possibilities curve”.
Term
 ***Production Possibility Curve= 5 assumtions
Definition
 1) limited resources2) No change in the resources3) full employment (cyclical employ=0)4) no change in technoloy5) productive effenciency
Term
 Actual Real GDP falls short of Potential Real GDP (such as at point inside the possiblitty curve), there must be some cyclical unemployment
Definition
 NR there will always be some of (frictional and Structual) but when actual GDP falls below Potential GDP then C>0
Term
 Actual Real GDP equals Potential Real GDP only at (or around)
Definition
 the peaks of the business cycle.
Term
 Market ingredients
Definition
 1) Potential Buyer (demand) 2) Potentail Seller (supply) 3) interaction betweeen seller and buyer
Term
 Demand schedule
Definition
 is an economic model-amount of product that a buyer is willing to pay
Term
 Demand = Inverse realtionship
Definition
 (only if you have cetris parabis)
Term
 Law of Demand =
Definition
 alwasys has an inverse relationship between PRICE and QUANTITY
Term
 vOILATION OF CETERIS PARABIS MEANS
Definition
 There is no inverse relationship
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