# Economics Ch 6 Tracking the U.S. Economy

 The flashcards below were created by user gabilog on FreezingBlue Flashcards. expenditure approach to GDP Calculating GDP by adding up spending on all final goods and services produced in the nation during the year income approach to GDP Calculating GFP by adding up all earnings from resources used to produce output in the nation during the year final goods and services Goods and services sold to final, or end users intermediate goods and services Goods and services purchased by firms for further reprocessing and resale 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 consumption Household purchases of final goods and services, except for new residences, which count as an investment investment The purchase of new plants, new equipment, new buildings, and new residences, plus net additions to inventories physical capital Manufactured items used to produce goods and services; includes new plants and new equipment residential construction Building new homes or dwelling places inventories Producers' stocks of finished and in-process goods government purchases Spending for goods and services by all levels of government; government outlays minus transfer payments net exports The value of a country's exports minus the value of its imports aggregate expenditure Total spending on final goods and services in an economy during a given period, usually a year aggregate incom All earnings of resource suppliers in an economy during a given period, usually a year value added At each stage of production, the selling price of a product minus the cost of intermediate goods purchased from other firms disposable income (DI) The income households have available to spend or to save after paying taxes and receiving transfer payments net taxes (NT) Taxes minus transfer payments financial markets Banks and other financial institutions that facilitate the flow of funds from savers to borrowers What is the formula for aggregate expenditure? C+I+G+(X-M)=Aggregate expenditure = GDP What is the formula for aggregate income? DI + NT = aggregate income = GDP injection Any spending other than by households or any income other than from resource earnings; includes investment, government purchases, exports, and transfer payments leakage Any diversion of income from the domestic spending stream; includes saving, taxes and imports underground economy Market transactions that go unreported either because they are illegal or because people involved want to evade taxes depreciation The value of a capital stock used up to produce GDP or that becomes obsolete during the year net domestic product Gross domestic product minus depreciation nominal GDP GDP based on prices prevailing at the time of production base year The year with which other years are compared when constructing an index; the index equals 100 in the base year 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 consumer price index or CPI A measure of inflation based on the cost of a fixed market basket of goods and services GDP price index A comprehensive inflation measure of all goods and services included in the grass domestic product 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 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 (4) Authorgabilog ID285480 Card SetEconomics Ch 6 Tracking the U.S. Economy DescriptionCh6 Updated2014-10-18T16:22:25Z Show Answers