Macro: Exam 1

the market value of production must equal expenditure.

GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services. Money continuously flows from households to firms and then back to households, and GDP measures this flow of money. GDP is generally regarded as the best single measure of a society's economic well-being.

every dollar of spending by some buyer is a dollar of income for some seller

income and expenditure both rise.

durable goods, nondurable goods, and services.

then both GDP and consumption spending will be higher.

Item (1) is included in the consumption component of GDP, while item (2) is included in the investment component of GDP.

U.S. imports but not U.S. exports increase.

constant prices.

Nominal GDP equals real GDP in the base year

It was unchanged

The consumer price index measures quantity of goods and services the economy produces.

percentage change in the price level from the previous period.

If Ken had earned $83,000 in 2015, his standard of living would have improved relative to his income in 2000.

125 in Kansas City and 150 in Dallas

100 in Minneapolis and 89 in Louisville

Measures total income of everyone in the economy. Also measures total expenditure on the economy's output of goods and services.

For the economy as a whole Because every dollar a buyer spends is a dollar of income for the seller.

Factors of production are inputs like labor, land, capital, and natural resources. Factor payments are payments to the factors of production (e.g., wages, rent).

intended for the end user

used as components or ingredients in the production of other goods

Total spending by households on goods and services. Not included in C: purchases of new housing.

Total spending on goods that will be used in the future to produce more goods.

All spending on the goods and services purchased by the government

Exports: foreign spending on the economy's goods and services Imports: are the portions of C, I, and G that are spent on goods and services produced abroad

Consumption and GDP rise by $300

Investment rises by $1200, net exports fall by $1200, GDP is unchanged.

Current GDP and investment do not change, because the computer was built last year.

Consumption rises by $470 million, inventory investment rises by $30 million, and GDP rises by $500 million

Values output using current prices Not corrected for inflation

Values output using the prices of a base year Is corrected for inflation

Nominal GDP = Real GDP

is 100 X (the nominal GDP divided by the real GDP).

Measure of the overall level of prices. Measure of the overall cost of goods and services. Computed and reported every month by the Bureau of Labor Statistics (BLS)

Cost of basket of goods and services in current year divided by cost of basket in base year, Times 100.

(CPI this year-CPI Last year) / (CPI Last Year) X 100

Included in CPI Excluded from GDP deflator

Excluded from CPI Included in GDP deflator (if produced domestically)

CPI uses fixed basket GDP deflator uses basket of currently produced goods & services This matters if different prices are changing by different amounts

(Amount in year T dollars) ×(Price level today / Price level in year T)

Interest rate not corrected for inflation Rate of growth in the dollar value of a deposit or debt.

Corrected for inflation Rate of growth in the purchasing power of a deposit or debt. NOMINAL INTEREST - INFLATION