GDP and Measuring the Economy
Terms in this set (31)
The final value of all goods and services produced within a country in a year
GDP is one way to measure what?
Material standard of living.
Formula for calculating GDP
C + I + G + (NX)
Goods and services bought by consumers for their direct use
Business or producer goods - businesses purchases of tools, machines, buildings
include spending by all levels of government on goods and services (police salaries, military, infrastructure)
The difference between what the nation sells to other countries (Exports) and what it buys from other countries (imports)
Measures the value of all the goods and services produced expressed in current prices (not adjusted for inflation)
Real gross domestic product
measures the value of all the goods and services produced expressed in the prices of some base year using a price deflator
A price index that reduces current prices into prices of base year.
Real per capita GDP
The real gross domestic product divided by the country's population
Things GDP does not measure
volunteering, child care, meals, lawn maintenance, the value of leisure time, value of illegal activities (drugs)
Standard of living
The financial health of a population, as measured by per capita income and consumption of goods and services by individuals or households.
The output of goods and services measured per unit of input by labor, capital, or land.
The amount of goods and services the work force can produce during a given time period - an hour, a week, a month, or a year.
What is the main force behind growing per capita real GDP
Increasing labor productivity
What makes productivity improve over the years
The quality of human resources, the quality of management, the quantity and quality of capital resources, and technological change.
Law of diminishing marginal returns
an economic principal which holds that as more variable resources are added to a fixed amount of other resources, the additional amount produced eventually decreases. The decreasing amount produced leads to increasing costs.
The fluctuation in economic activity that an economy experiences over a period of time.
A speedup in the pace of economic activity, defined by high growth, low unemployment, and increasing prices. The period marked from trough to peak.
The upper turning point of a business cycle and the point at which expansion turns into contraction
A slowdown in the pace of economic activity defined by low or stagnant growth, high unemployment, and declining prices. It is the period from peak to trough.
The lowest turning point of a business cycle in which a contraction turns into an expansion. This turning point is also called the recovery
Boom and bust cycles
Characterized as business cycles in which the periods of expansion are swift and the subsequent contraction is steep and severe.
The time when business activity has reached its peak and starts to fall until the time when business activity bottoms out.
When the business activity starts to rise again after a recession
Causes of a recession
1) Loss of business and/or consumer confidence. As confidence decreases, so does demand.
A recession that lasts longer and has a larger decline in business activity. Any economic downturn where real GDP declines by more than 10 percent.
Ways to avoid a recession
Increase aggregate demand. - increase consumer spending, investments. Devalue exchange rate/ increase exports, cut interest rates and/or taxes. Decrease banks reserve requirements, reduce inflation.
Changing tax rates and levels of government spending to influence aggregate demand. - tax cuts, transfer payments, rebates.
Changing interest rates and influencing the money supply. - raising/lowering interest rates, reserve requirements, quantitative easing.
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