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national income accounting
answer
a system that collects statistics on production, income, investment, and savings to monitor the macroeconomy
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gross domestic product (GDP)
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the dollar value of all final goods and services produced within a country's borders in a given year (doesn't include intermediate goods)
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intermediate goods
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goods used in the production of final goods and services
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expenditure approach (calculating GDP)
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totals annual expenditures on 4 categories of final goods or services
1. consumer goods and services
2. business goods and services
3. gov goods and services
4. net exports or imports of goods or services
1. consumer goods and services
2. business goods and services
3. gov goods and services
4. net exports or imports of goods or services
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income approach (calculating GDP)
answer
adds up all the incomes in the economy
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durable goods
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goods that last for a relatively long time (fridge)
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nondurable goods
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goods that last a short period of time (food)
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nominal GDP
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measured in current prices (doesn't account for price level increases from year to year)
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real GDP
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expressed in constant, or unchanging, dollars
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GDP doesn't include:
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- nonmarket activities
- negative externalities
- the underground economy
- quality of life
- negative externalities
- the underground economy
- quality of life
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nonmarket ativities
answer
goods and services people do for themselves
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negative externalities
answer
unintended economic side effects (pollution) have monetary value
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underground economy
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income that is generated that is never reported to the gov
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quality of life
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leisure time, pleasant surroundings, and personal safety
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gross national product (GNP)
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measure of the marlet value of all goods and services produced by Americans in one year
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net national product (NNP)
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measure of the output made by Americans in one year minus adjustments for depreciation (the loss of value of capital equipment that results from normal wear and tear)
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national income (NI)
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equal to NNP minus sales and excise taxes
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personal income (PI)
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total pre-tax income pain to US households
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disposable personal income (DPI)
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equal to personal income minus individual income taxes
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factors influencing GDP
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aggregate supply, aggregate demand, and aggregate supply/aggregate demand equilirium
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aggregate supply
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total amount of goods and services in the economy available at all possible price levels (as price levels rise, aggregate supply rises and real GDP increases)
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aggregate demand
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the amount of goods and services that will be purchased at all possible price levels (lower price levels will increase aggregate demand as consumers' purchasing power increases)
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aggregate supply/demand equilibrium
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combining aggregate supply curves and aggregate demand curves, equilibrium for the macroeconomy can be determined
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business cycle
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macroeconomic period of expansion followed by a period of contraction
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4 phases
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1. expansion
2. peak
3. contraction
4. trough
2. peak
3. contraction
4. trough
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expansion
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period of economic growth as measured by a rise in real GDP
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economic growth
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steady, long - term ride in real GDP
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peak
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when real GDP stops rising, hits peak
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contraction
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economic decline marked by a fell in real GDP
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recession
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a prolonged economic contraction
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depressions
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especially long or severe recession
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trough
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lowest point of economic decline when GDP stops falling
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business cycles affected by
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1. business investment
2. interest rates and credit
3. consumer expectations
4. external shocks
2. interest rates and credit
3. consumer expectations
4. external shocks
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business investment
answer
when economy is expanding, firms expect sales and profits to keep rising so they creates new jobs and furthers expansion
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interest rates and credit
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when interest rates are low, companies make new investments, often adding jobs to the economy. when interest rates climb, investment dries up, as does job growth
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consumer expectations
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forecasts of a expanding economy often fuel more spending, while fears of recession tighten consumers' spending
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external shocks
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such as distruptions of the oil supply, war, or natural disasters, influence output of an economy
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leading indicators
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key economic variables economists use to predict a new phase of a business cycle (stock market, interest rates, new home sales)
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