Econ 204 Ch.5,6

Measurement of aggregate economic activity
National income accounting is defined as the
Economic policy makers in formulating policies and evaluating performance
National income accounts assist
Add the values of output from different sectors of the economy, Compare the value of output of one period with that of another, and Provide an index to measure the rate of inflation
Prices are used in national income accounting for what reasons
The total value added at all stages of production
A nation’s GDP can be calculated as
Multiplying output by price and adding the resulting dollar values
DVD players can be added to bicycles to compute the GDP by
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GDP per capita
Is equal to a nation’s GDP divided by its population
Make international comparisons of the standard of living
The GDP per capita is the most practical way to
GDP per capita has increased
If GDP grows more rapidly than population for a particular country over a period
of time, then we can determine that
remain unchanged
Suppose you volunteer to help clean up your neighborhood, and the only
payment you receive is the sense of goodwill that develops with your neighbors.
Your efforts cause the GDP of the economy to
Right. GDP will increase, ceteris paribus
Suppose a friend claims he is helping the economy by throwing trash on the
street rather than in trash cans because the extra expenditures necessary to
clean up the streets will increase GDP. Your friend is
Productive but excluded from GDP because it is a nonmarket activity
When an individual makes repairs to her own home instead of hiring a company
to make the repairs, the activity is
Unreported income
is definitely part of the underground economy
intermediate good
A furniture factory produces dining room sets. The lumber it purchases from the
lumberyard is a/an
Greater than the GDP
If one added up the value of all intermediate goods that went into the production
of real GDP, the total value of intermediate goods would be
How much the economy can produce
An economy’s production possibilities curve indicates
An increase in the average level of prices of goods and services
The account that gives the most accurate understanding of the economy’s
potential for growth over the long term is
Net domestic product
The national income aggregate calculated by subtracting depreciation from GDP is known as
Gross investment
Expenditure on new plants, equipment, and residential construction, plus
changes in business inventories`
Gross investment is greater than depreciation
An economy’s production possibilities are most likely to expand if
Subtracting depreciation from gross investment
The addition to the economy’s capital stock can be found by
Two-thirds of total output
Subtracting depreciation from gross investment
Increase GDP during that period
An increase in business inventories during a time period, ceteris paribus, will
Goods and services sold to foreigners
Net exports
The value of exports minus the value of imports
Subtracted from total spending because they are part of another country’s
When we calculate GDP, imports are
Disposable income
The measure of what households receive after personal income tax is deducted
Consumption + saving
Disposable income is equal to
The measure of the part of disposable income that is not consumed
Labor force
all persons age 16 and over who are either employed or actively seeking work
the inability of labor force participants to find jobs
Okun’s Law
a 1 percent increase in unemployment results in a 2 percent decrease in GDP
Phantom unemployment
Some people report that they are looking for work, when in fact they are not. This is done to satisfy the job-seeking requirements of welfare reform, or the requirements for receiving unemployment benefits. These people are reported as unemployed, when the truth is they are not in the labor force
Seasonal unemployment
unemployment due to seasonal changes in employment
Frictional unemployment
brief periods of unemployment experienced by people moving between jobs or into the labor market
Structural unemployment
unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs
Cyclical unemployment
unemployment caused by a decline in economic activity
Inflationary flashpoint
the rate of output at which inflationary pressures intensify.
Full employment
the lowest unemployment rate compatible with price stability; zero cyclical unemployment.
Natural rate of unemployment
long-term rate of unemployment determined by structural forces in labor and product markets.
Outsourcing jobs
relocation of production (and jobs) to other countries to take advantage of lower production costs
Actively seeking employment and currently not working
To be officially counted as unemployed, one must be
national income
the total income earned by U.S. factors of production
income earned by foreigners producing American goods minus income earned by Americans producing foreign goods
Labor force that are not employed
The unemployment rate is interpreted as the percentage of the
Transfer payments
The government does issue transfer payments to people
Not in the labor force
The full-time homemakers and retirees are classified in the BLS data as
Is in the process of voluntarily switching jobs
The best example of a “frictionally unemployed” worker is one who
structural unempolyment
A worker who loses a job at a call center because business firms switch the call center to
another country is an example of
Frictionally unemployed
New college graduates still looking for their first jobs would be classified in the BLS data
Cyclical unemployment
A headline states: “Real GDP falls again as the economy slumps.” This condition is most
likely to produce what type of unemployment?
A rise in that average price level
A decrease in that average price level
relative price
the price of one good compared to the price of other goods
Money illusion
using nominal dollars rather than real dollars to gauge changes in one’s income or wealth
bracket creep
the movement of taxpayers into higher tax brackets as nominal income grows
consumer price index
a measure of the average price of consumer goods and services
inflation rate
the annual percentage rate of increase in the average rate
Core inflation
changes in CPI, excluding food and energy prices
Producer price index
changes in the average prices at intermediate steps of production
GDP deflator
changes in prices of all goods and services included in GDP
price stability
the absence of significant changes in the average price level
demand-pull inflation
results from excessive pressure to buy on the demand side of the economy
cosh-push inflation
due to higher production costs putting pressure on suppliers to push up prices
Cost of living allowances
nominal incomes are indexed to automatically rise at the same rate as inflation
Adjustable-rate mortgage
interest rate on a mortgage rises along with inflation so that lenders do not lose money
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