Macro Chap 20

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  1. GDP
    Market value of final goods and services produced w/i a country in a given period of time
  2. Mkt Value
    Prices at which items are traded
  3. Final G/S
    Bought by Final user
  4. Intermediate Good
    • Item produced by one firm, bought by another firm, used as component in final good. 
    • Not counted b/c would be counted twice
  5. Produced w/i Country
    Only g/s produced in country count towards GDP
  6. Given Time Period
    Normally quarter of a year or year
  7. Households and Firms
    • Households sell and firms buy factors of production.
    • Firms RE are part of households income
  8. Consumption Expenditure
    Total pmt for g/s
  9. Investment
    Purchase of new plant equip and buildings and additions to inventories
  10. Gov Expenditure
    • Govs buy g/s from firms
    • Financed through taxes
    • Taxes and social sec benefits not included in expenditure
    • Ex. National defense, garbage disposal
  11. Y = C + I +G + X - M
    GDP = consumption + investment + gov expenditure + exports - imports
  12. Income Approach
    • Measures GDP by summing incomes that firms pay households
    • Wages (pmt for labour services) + OFI (corp profits) + Indirect Taxes (GST paid by consumers NOT income tax) - subsidies + depreciation
  13. Statistical Discrepancy
    • Gap b/w expenditure and income approach
    • GDP
  14. Real GDP
    value of g/s at prices of a reference year
  15. Nominal GDP
    value of g/s valued at prices of that year
  16. Real GDP per Person
    • real gdp divided by population
    • Standard of living
    • G/S average person can enjoy
  17. Potential GDP
    • max level of real GDP that can be produced avoiding shortages of labour, capital, land, and entrepreneurial ability
    • Grows at steady pace b/c
  18. Lucas Wedge
    dollar value of accum gap b/w whawt real GDP per person could be if growth of 1960's maintained
  19. Business Cycle
    • Periodic, irregular movement of total production and other measures
    • Expansion, recession, peak, trough
  20. Expansion
    • real GDP increases. 
    • real eventually exceeds potential
  21. Recession
    • Real GDP decreases
    • Growth rate negative for 2 successive periods
  22. Peak
    Expansion ends, recession begins
  23. Trough
    Recession ends, expansion begins
  24. Standard of Living Across Countries
    • Currency must be converted
    • Purchasing Power Parity (PPP) uses same prices for goods for each country
  25. Limitations of Real GDP
    • Household production
    • Underground econ act.
    • Health and Life expectancy
    • Leisure time
    • security
    • env quality
    • political freedom and social justice
  26. Household production (Limitations of GDP)
    • not included in gdp
    • underestimates total production, overestimates growth
  27. Underground eco act (Limitations of GDP)
    • illegal act to avoid taxes
    • more taxes = more illegal
  28. Health and Life Expectancy (Limitations of GDP)
    • good health and long life don't show up in gdp
    • more gdp = more money for med research
  29. Leisure time (Limitations of GDP)
    • adds to econ well being and standard of living
    • more leisure time, better off we are
  30. Env Quality (Limitations of GDP)
    • more gdp doesn't always mean clean env.
    • canada vs china
  31. Political Freedom and Social Justice (Limitations of GDP)
    country can have large gdp, with most wealth owned by few
Card Set:
Macro Chap 20
2014-10-26 17:15:44
macro midterm

Test 2
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