Economics Ch 6 Tracking the U.S. Economy

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  1. expenditure approach to GDP
    Calculating GDP by adding up spending on all final goods and services produced in the nation during the year
  2. income approach to GDP
    Calculating GFP by adding up all earnings from resources used to produce output in the nation during the year
  3. final goods and services
    Goods and services sold to final, or end users
  4. intermediate goods and services
    Goods and services purchased by firms for further reprocessing and resale
  5. double counting
    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
  6. consumption
    Household purchases of final goods and services, except for new residences, which count as an investment
  7. investment
    The purchase of new plants, new equipment, new buildings, and new residences, plus net additions to inventories
  8. physical capital
    Manufactured items used to produce goods and services; includes new plants and new equipment
  9. residential construction
    Building new homes or dwelling places
  10. inventories
    Producers' stocks of finished and in-process goods
  11. government purchases
    Spending for goods and services by all levels of government; government outlays minus transfer payments
  12. net exports
    The value of a country's exports minus the value of its imports
  13. aggregate expenditure
    Total spending on final goods and services in an economy during a given period, usually a year
  14. aggregate incom
    All earnings of resource suppliers in an economy during a given period, usually a year
  15. value added
    At each stage of production, the selling price of a product minus the cost of intermediate goods purchased from other firms
  16. disposable income (DI)
    The income households have available to spend or to save after paying taxes and receiving transfer payments
  17. net taxes (NT)
    Taxes minus transfer payments
  18. financial markets
    Banks and other financial institutions that facilitate the flow of funds from savers to borrowers
  19. What is the formula for aggregate expenditure?
    C+I+G+(X-M)=Aggregate expenditure = GDP
  20. What is the formula for aggregate income?
    DI + NT = aggregate income = GDP
  21. injection
    Any spending other than by households or any income other than from resource earnings; includes investment, government purchases, exports, and transfer payments
  22. leakage
    Any diversion of income from the domestic spending stream; includes saving, taxes and imports
  23. underground economy
    Market transactions that go unreported either because they are illegal or because people involved want to evade taxes
  24. depreciation
    The value of a capital stock used up to produce GDP or that becomes obsolete during the year
  25. net domestic product
    Gross domestic product minus depreciation
  26. nominal GDP
    GDP based on prices prevailing at the time of production
  27. base year
    The year with which other years are compared when constructing an index; the index equals 100 in the base year
  28. price index
    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
  29. consumer price index or CPI
    A measure of inflation based on the cost of a fixed market basket of goods and services
  30. GDP price index
    A comprehensive inflation measure of all goods and services included in the grass domestic product
  31. chain-weighted system
    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
  32. What are problems with CPI?
    (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

Card Set
Economics Ch 6 Tracking the U.S. Economy
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