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22 Cards in this Set
- Front
- Back
Macroeconomics
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the study of economoy wide phenomena including inflation, unemployment, and economic growth
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Gross Domestic Product (GDP)
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The market value of all FINAL goods and services produced within a country in a given period of time
Does NOT include items produced in the past Is DOMESTIC produced within borders of the U.S. Does not include anything that is illegal--because the black market is hard to track |
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Market prices reflect the value of a good
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true
if something is 2x as expensive as something else it will contribute 2x the amount the other good will to GDP |
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2 Primary ways to calculate GDP
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1. Total Expenditures
2. Total Income |
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To understand how the economy is using its scarce resources GDP is broken down intow 4 categories
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Y (GDP) = C + I + G + NX
C-Consumption I-Investments G-Government purchases NX-Net Exports |
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Consumption
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Spending by households on goods and services with the exception of purchase of new houses
Largest aspect of GDP |
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Investment
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Spending on capital equipment, inventories, and structures, including Household purchases of new housing
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Government Purchases
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Spending on goods and services by local, state, and federal governments
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Net Exports
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Spending on domestically produced goods by foreigners (exports) MINUS spending on foreign goods by domestic residents (imports)
Exports - Imports = Net Exports |
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GDP measures the total spending on goods and services in all markets in the Economy.
IF total spending rises from one year to the next, at least 1 of 2 things must be true: |
1. the economy is producing a larger output of goods and services
2. goods and services are being sold at a higher prices |
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Real GDP
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The production of goods and services valued at CONSTANT prices
answers a hypothetical question: What would be the value of the goods and services produced this year if we valued these goods and services at the prices that prevalied in som specific year in the past? |
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Nominal GDP
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The production of goods and service valued at CURRENT prices
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Real GDP
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helps us obtain a measure of the amount produced that is not affected by changes in prices
1. Designate a Base Year |
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Nominal GDP uses current prices to place a value on the economy's production of goods and services. Reald GDP uses constant base year prices to place a vlue on the economy's production of goods and services
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true
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Real GDP is a measure of the economy's production of goods and services
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True
because it is NOT affected by changes in price (inflation) |
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GDP Deflator
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A measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
GDP Deflator = [(Nominal GDP)/(Real GDP)] * 100 |
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Because nominal GDP & Real GDP must be the same for the base year, the GDP deflator for the base year always equals 100
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true
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Inflation
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when the economy's overall price level is rising
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Inflation Rate
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the % change in some measure of the price level from one period to the next
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How do you calculate the inflation rate from one year to the next?
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Inflation rate in yr 2 = (GDP deflator in year 2 - GDP deflator in year 1)/ GDP deflator in year 1 ] *100
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Recession
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Period in time when GDP declines
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Total income = total expenditure in an economy?
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true!
bc every transaction has a buyer & a seller |