Macroeconomics Chapter 6 Flashcards

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Questions and Answers

What is the definition of Production?

Income

What does Gross Domestic Product (GDP) represent?

The market value of all final goods and services produced within a country during a specific period.

What are three uses of GDP data?

Measuring inflation

Measuring living standards (correct)

Determine whether the economy is experiencing a recession or expansion (correct)

Measure economic growth (correct)

What is Per capita GDP?

GDP per person (country's total GDP divided by the population) Signup and view all the answers

What is inflation?

The growth in the overall level of prices in an economy. Signup and view all the answers

What is Real GDP?

GDP adjusted for changes in prices. Signup and view all the answers

How is economic growth measured?

As the percentage change in real per capita GDP. Signup and view all the answers

What is a recession?

A short-term economic downturn typically lasting about 6 to 18 months. Signup and view all the answers

What is the Great Recession?

Lasted from Dec 2007 to June 2009 with real GDP falling by almost 9% in the last three months of 2008. Signup and view all the answers

What is a Business Cycle?

A short-run fluctuation in economic activity. Signup and view all the answers

What are the four components of business cycles?

Contraction Signup and view all the answers

What characterizes Economic Expansion?

A phase of the business cycle during which the economy is growing faster than usual. Signup and view all the answers

What is Economic Contraction?

A phase of the business cycle during which the economy is growing more slowly than usual. Signup and view all the answers

What is the formula for Market Value?

Quantity x Unit Price Signup and view all the answers

What is a Service in economic terms?

An output that provides benefits without the production of a tangible product. Signup and view all the answers

What is an Intermediate Good?

A good that firms repackage or bundle with other goods for sale at a later stage. Signup and view all the answers

What is a Final Good?

A good sold to users, included in GDP. Signup and view all the answers

What does Gross National Product (GNP) measure?

The output produced by workers and resources owned by residents of the nation. Signup and view all the answers

Which of the following are not counted towards GDP?

Intermediate goods Signup and view all the answers

What is the Bureau of Economic Analysis (BEA)?

The U.S. government agency that tallies GDP data. Signup and view all the answers

What is the formula to calculate GDP?

C + I + G + NX (Consumption, Investment, Government Purchases, Net Exports) Signup and view all the answers

What does Consumption (C) include?

The purchase of final goods and services by households, excluding new housing. Signup and view all the answers

What are the two types of consumption goods?

Non-durable Signup and view all the answers

What are Durable Goods?

Consumed over a long period of time and purchased more often when the economy is strong. Signup and view all the answers

What are Non-durable Goods?

Consumed over a short period of time and must often be purchased regardless of economic conditions. Signup and view all the answers

What does Investment (I) entail?

Private spending on tools, plants, and equipment used to produce future output. Signup and view all the answers

What is Government Spending (G)?

Includes spending by all levels of government on final goods and services. Signup and view all the answers

What are Net Exports (NX)?

Exports - imports. Signup and view all the answers

What is Nominal GDP?

GDP measured in current prices and not adjusted for inflation. Signup and view all the answers

What is the Price Level?

An index of the average prices of goods and services throughout the economy. Signup and view all the answers

What is the GDP Deflator?

A measure of the price level that includes prices of the final goods and services included in GDP. Signup and view all the answers

What are four shortcomings that limit the effectiveness of GDP?

Non-Market Goods Signup and view all the answers

Study Notes

Production and GDP

Production equates to income generated within an economy.
Gross Domestic Product (GDP) reflects the market value of all final goods and services produced in a country during a specific period.
Per capita GDP represents the total GDP divided by a country's population, indicating average economic output per person.

Uses of GDP Data

GDP is utilized to measure living standards, assess economic growth, and identify the state of the economy, whether in recession or expansion.

Inflation and Real GDP

Inflation signifies the overall increase in price levels within an economy.
Real GDP accounts for price changes, providing a more accurate economic measure over time.

Economic Growth and Recession

Economic growth is quantified as the percentage change in real per capita GDP.
A recession is characterized as a temporary economic downturn, generally lasting between 6 to 18 months.

The Great Recession

Extended from December 2007 to June 2009, lasting 19 months.
During this period, real GDP dropped by nearly 9% in Q4 of 2008.

Business Cycles

Business cycles represent short-term fluctuations in economic activity, consisting of four phases: expansion, contraction, peak, and trough.
Economic expansion indicates a period of accelerated growth from trough to peak, while economic contraction reflects a slowdown from peak to trough.

GDP Measurement

Market value is calculated by multiplying quantity by unit price.
Services comprise the majority of GDP, representing outputs that provide benefits without tangible products.

Goods Classification

Intermediate goods are not included in GDP, as their value is packaged with other goods for sale later.
Final goods are sold to end users and are included in GDP calculations.

National Accounts

Gross National Product (GNP) measures output produced by residents' resources, regardless of location.
Goods excluded from GDP calculations include intermediate goods, second-hand goods, and financial instruments like stocks and bonds.

Bureau of Economic Analysis (BEA)

The BEA is responsible for compiling GDP data in a process referred to as national income accounting.

GDP Components

GDP can be expressed as C + I + G + NX, where C is consumption, I is investment, G is government spending, and NX is net exports.
Consumption accounts for 71% of GDP, with two categories: durable (long-lasting items) and non-durable goods (short-lived products).

Investment and Government Spending

Investment represents private spending on tools and equipment for future production (12% of GDP).
Government spending encompasses expenditures by all levels of government on final goods and services (21%).

Net Exports

Net exports are determined by subtracting imports from exports, contributing negatively at -4% to GDP.

Nominal vs. Real GDP

Nominal GDP reflects measurements in current prices and does not consider inflation, typically growing faster than real GDP.

Price Level and GDP Deflator

The price level is an index indicating the average prices of goods and services, rising or falling according to economic trends.
The GDP deflator serves as a price level measure for adjusting GDP data.

Shortcomings of GDP as a Measure

GDP effectiveness is limited by several shortcomings:
- Non-market goods that are not reflected in transactions,
- The underground economy that bypasses official reporting,
- Environmental quality not represented in economic statistics,
- The contribution of leisure time which GDP does not account for.

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Description

Test your knowledge of key terms and concepts from Macroeconomics Chapter 6 with these flashcards. This resource covers important definitions like Production and GDP, and highlights the various uses of GDP data in evaluating economic performance.