Econ Chapter 12 Flashcards

Study Notes

GDP and Its Components

GDP measures the value of all final goods and services produced domestically during a specific time frame.
Final goods are those purchased by ultimate users, while intermediate goods, like sugar in ice cream, are excluded from GDP to avoid double counting.
Intermediate products produced domestically are not reflected in GDP as their value is included in the final goods.

Consumption

Consumption accounts for purchases of goods and services by households, encompassing spending on durable goods.
It is the largest component of GDP, contributing approximately 70 percent in recent years.

Measuring GDP

The expenditure method calculates GDP by summing consumption, investment, government spending, and net exports (exports minus imports).
GDP is categorized into four components: consumption, investment, government purchases, and net exports.

Investment and Government Spending

Investment refers to expenditures on capital goods by businesses.
Government purchases encompass spending by federal, state, and local governments.

International Trade

Net exports are derived from exports (goods produced domestically and sold to foreigners) minus imports (goods bought from other countries).
Only final goods affect GDP when they are purchased using transfer payments, which themselves are not included in GDP calculations.

Factor Payments

Factor payments represent the income received by owners of resources used in the production of final goods and services.

U.S. GDP Exclusions

An example of items excluded from U.S. GDP is a Toyota manufactured in Japan and sold in the U.S., as it is not produced domestically.

Description

Test your knowledge on key economic concepts from Chapter 12, focusing on Gross Domestic Product (GDP) and the distinctions between final and intermediate goods. These flashcards are designed to reinforce your understanding of important definitions and applications in economics.