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natural, human, and manufactured inputs
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Economic resources are the...used to produce goods and services.
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labor, land, real capital, entrepreneurs
answer
Economists classify resources as
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factors of production or inputs
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Because economic resources are used to produce goods and services, they are called
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Increases in resource supplies and advances in technology
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What are the two major ways in which an economy can grow and push out its production possibilities curve?
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Positive economics
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focuses on facts and cause-and-effect relationships. It includes description, theory development, and theory testing.
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normative economics
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The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.
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consumer purchases of goods and services + gross investment spending by businesses + government purchases + net exports (C + Ig + G + Xn)
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expenditures approach
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GDP - consumption of fixed capital
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What is the net domestic product equation?
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net domestic product - statistical discrepancy + net foreign factor income
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national income
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personal income - taxes
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disposable income
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(price of market basket in specific year / price of same market basket in base year)*100
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price index
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nominal gdp/price index (in hundredths)
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real gdp
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spending on new plant and equipment, newly produced housing, any changes in inventories
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gross private domestic investment consists of...
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taste, income, number of buyers, consumer expectations
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demand determinants
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tech, taxes/subsidies, producer expectations, prices of other goods, resource prices, number of sellers
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supply determinants
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personal consumption expenditures (C)
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everything households spend on goods and services
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gross private domestic investment (Ig)
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gross investment: not adjusted for depreciation; final purchases of machinery, equipment, and tools by businesses; construction, changes in inventories, money spent on research and development (R&D) or for the creation of new works of art, music, writing, film, and so on.
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government purchases (G)
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expenditures for goods and services that government consumes in providing public services; expenditures for publicly owned capital such as schools and highways, which have long lifetimes; and government expenditures on R&D and other activities that increase the economy's stock of know-how.
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Net exports
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exports - imports (x-m)
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national income to GDP
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net foreign factor income (remove from US citizens working abroad; add in from foreigners working in the US; consumption of fixed K; statistical error
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net domestic product (NDP)
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total final output produced within a nation during a year, where output includes net investment or gross investment, less depreciation.
= GDP - consumption of fixed K
GDP adjusted for depreciation
= GDP - consumption of fixed K
GDP adjusted for depreciation
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national income (NI)
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represents total income received by the nation
= NDP - statistical discrepancy + net foreign factor income
= NDP - statistical discrepancy + net foreign factor income
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personal income (PI)
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national income - taxes on production and imports - social security contributions - corporate income taxes - undistributed corporate profits + transfer payments
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Disposable income
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how many dollars per year do households actually have available to spend?
= Personal income - taxes
= Personal income - taxes
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upper loop
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circular flow diagram: people spend money on final goods (total dollar flow is one measure of GDP)
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lower loop
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circular flow diagram: annual flow of costs of output (wages, rent, interest, dividends, profits)
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shortcomings of GDP
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doesn't account for nonmarket activities, leisure, product quality, underground economy, definitions of wellbeing
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gdp
answer
personal consumption expenditures + consumption of fixed capital (depreciation) + net exports + gov. purchases + net private domestic investment
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