Chapter 7
Economics 06e with Fuhrman at University of Iowa
About this deck
By: Christine Carlson
Textbook:
Macroeconomics, Updated Edition (2nd Edition)
Created: 2011-05-11
Size: 21 flashcards
Views: 7
Textbook:
Macroeconomics, Updated Edition (2nd Edition)Created: 2011-05-11
Size: 21 flashcards
Views: 7
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Expansion
period of the business cycle during which total productions and total employment are increasing
Recession
total production and total employment are decreasing
Inflation Rate
the percentage increase in the price level from one year to the next
GDP
market value of all final goods/services produced in a country during a period of time, typically 1 year
Micro production vs. Macro production
In micro, production of a good or service is measured by using quantity (Q*)
In macro, production of all goods and services is measured using market values [i.e. GDP= (P1*)(Q1*) + (P2*)(Q2*)+...+ (Pn*)(Qn*) ]
Demand view: GDP
GDP= value if total expenditures on the economy's total production by buyers (households, firms, government, and reset of world)
Supply view: GDP
GDP= value of total income received by households who provided factors of production that produce the economy's total production (wages for labor, interest for the use of capital, rent for the use of natural resources, and profits for entreprenuers)
Intermediate good or service
an input into another good/service (ex: tire on a truck)
If intermediate goods were included, we would be "double counting" since this value is already included as part of the value of the final good
The measurement of GDP "in a year"
The BEA measures and reports GDP every quarter.
BEA measures total production over 3 months (1 quarter) then multiples that value by 4, so each quarterly report gives an annual measure of GDP.
(Also, the BEA adjusts GDP for regular seasonal changes, such as Christmas)
Production, Income and the Circular Flow Diagram
Value of Total Production (measured by GDP) = Value of Total Income
This is because $100 spent on a good will ultimately result in $100 worth of income for various factors of production that produced that good
The Circle Flow and the Measurement of GDP
Firms sell goods/services to 3 groups: 1) Domestic Households, 2) Foreign Firms, & 3) Government.
To produce goods, firms use FOP (L,C,NR,&E) which are supplied by Households in exchange for Income in the form of wages, interest, profit, rent
Total Income=wages+interest+rent+profit
We can measure GDP as total income received by Households
We can measure GDP by calculating total value of expenditures on final goods (demand POV) or total value of income (supply POV)
4 major categories of expenditures that GDP is divided into
1) Consumption (C)
2)Investment (I)- spending by firms on new factories, office buildings, machinery, and additions to inventories, PLUS spending by households and firms on new houses. Purchase of goods/services that will be used in the future to produce more goods/service (physical capital)
3)Gov't Purch (G)
4)Net Exports (NX)- Exports - Imports
Per-capita GDP is not a perfect measure of well-being
1) Value of leisure, quality of education, household production, volunteer, pop'n patriotism, intelligence, wisdom, health, creativity, ect. are not included in GDP
2)it's not adjusted for pollution or other negative effects of production or changes in crime and other social problems
3)measures income, but not income distribution
Nominal GDP
value of final goods/services evaluated at CURRENT YEAR PRICES
Real GDP
value of final goods/services evaluated at BASE YEAR PRICES
by keeping P constant, we know that changes in Real GDP represent changes int he Q of goods/services produced
purchasing power of dollar remains the same from 1 yr. to next
%age change in Real GDP
is a measure of the growth rate of an economy
Price Level
a measure of the average prices of goods/services in the economy
GDP Deflator
measure of the price level
=(Nominal GDP/Real GDP) x 100
holds quantities constant, so changes only reflect price level
Inflation Rate
% change of GDP Deflator
(New-Old)/Old x 100
GNP
market value of all final goods and services produced by all citizens of a country (including US citizens in foreign countries)
About this deck
By: Christine Carlson
Textbook: Macroeconomics, Updated Edition (2nd Edition)
Created: 2011-05-11
Size: 21 flashcards
Views: 7
Textbook:
Macroeconomics, Updated Edition (2nd Edition)Created: 2011-05-11
Size: 21 flashcards
Views: 7
About StudyBlue
STUDYBLUE makes things that make you better at school.
Things like online flashcards with photos and audio.
Things like personalized quizzes and friendly reminders about when (and what) to study next.
Think of it as a digital backpack™: access to all of your study materials online and on your phone.
STUDYBLUE exists to make studying efficient and effective for every student, for free. Join us.
“Simply amazing. The flash cards are smooth, there are many different types of studying tools, and there is a great search engine. I praise you on the awesomeness.”
Dennis
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