Economics Ch 6 Tracking the U.S. Economy

Calculating GDP by adding up spending on all final goods and services produced in the nation during the year

Calculating GFP by adding up all earnings from resources used to produce output in the nation during the year

Goods and services sold to final, or end users

Goods and services purchased by firms for further reprocessing and resale

The mistake of including both the value of intermediate products and the value of final products in calculating gross domestic product; counting the same production more than once

Household purchases of final goods and services, except for new residences, which count as an investment

The purchase of new plants, new equipment, new buildings, and new residences, plus net additions to inventories

Manufactured items used to produce goods and services; includes new plants and new equipment

Building new homes or dwelling places

Producers' stocks of finished and in-process goods

Spending for goods and services by all levels of government; government outlays minus transfer payments

The value of a country's exports minus the value of its imports

Total spending on final goods and services in an economy during a given period, usually a year

All earnings of resource suppliers in an economy during a given period, usually a year

At each stage of production, the selling price of a product minus the cost of intermediate goods purchased from other firms

The income households have available to spend or to save after paying taxes and receiving transfer payments

Taxes minus transfer payments

Banks and other financial institutions that facilitate the flow of funds from savers to borrowers

C+I+G+(X-M)=Aggregate expenditure = GDP

DI + NT = aggregate income = GDP

Any spending other than by households or any income other than from resource earnings; includes investment, government purchases, exports, and transfer payments

Any diversion of income from the domestic spending stream; includes saving, taxes and imports

Market transactions that go unreported either because they are illegal or because people involved want to evade taxes

The value of a capital stock used up to produce GDP or that becomes obsolete during the year

Gross domestic product minus depreciation

GDP based on prices prevailing at the time of production

The year with which other years are compared when constructing an index; the index equals 100 in the base year

A number that shows the average price of products; changes in a price index over time show changes in the economy's average price level

A measure of inflation based on the cost of a fixed market basket of goods and services

A comprehensive inflation measure of all goods and services included in the grass domestic product

An inflation measure that adjusts the weights from year to year in calculating a price index, thereby reducing the bias caused by a fixed-price weighting system

(1) There is a quality bias in the CPI, because it assumes that the quality of the market basket  remains relatively constant over time; To the extent that the CPI ignore quality improvements, it overstates the true extent of inflation.

(2) The CPI calculations, by not  allowing households to shift away from goods that have been more costly, overestimates the true extent of inflation experienced by the typical household

(3) The CPI has also failed to keep ip with the consumer shift toward discount stores such as Walmart, Costco, Home Depot

(4)