# 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
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

(4)
 Author: gabilog ID: 285480 Card Set: Economics Ch 6 Tracking the U.S. Economy Updated: 2014-10-18 16:22:25 Tags: Economics6 Folders: economics Description: Ch6 Show Answers: