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Unformatted text preview: Econ Study Guide 18/10/2008 17:33:00 Chapter 7 Business cycle- refers to the alternating periods of expansion and recession that the U.S. economy has experienced since at least the early nineteenth century. A o Expansion- a period during which total production and total employment are increasing o Recession- a period during which total production and total employment are decreasing Economic Growth- refers to the ability of an economy to produce increasing quantities of goods and services. o Economies that grow to slow fail to raise living standards Inflation rate- percentage increase in the average leel of prices from one year to the next. GDP- measure of total production. Its the market value of all final goods and services produced in a country during a period of time, typically one year. o BEA(Bureau of Economic Analysis)- complies the data needed to calculate GDP Reports every three months o Measure GDP by taking value, in dollar terms, of all goods and services produced Include on the value of final goods and services. Final Good or service is one that is purchased by its final user and is not included in the production of any other good or service Intermediate Good- goods that are purchased in the production process, that are not included in the GDP. (Tires that GM purchases for their cars or calculated into the GDP in the final value of the car) GDP does not include the sales of used goods. TOTAL INCOME of Economy = GDP GDP can be measured by total wages, interest, rent, and profits received by Households. The circular flow diagram shows that we can measure GDP either by calculating the total value of expenditures on final goods and services or by calculating the value of total income. Transfer Payments- include social security payments to retired and disabled people and unemployment insurance payments to unemployed workers. o These payments are no included in GDP Because they are not received in exchange for production of a new good or service. Financial System- Made up by banks, stocks, and bond markets o The flow of funds from households into the financial system makes it possible for the government and firms to borrow. Without the ability to borrow funds through financial system, firms will have difficulty expanding and adopting new technologies. The BEA divides its statistics on GDP into four major categories of expenditures. o P ersonal Consumption Expenditures (Consumption)- made up of expenditures on services, nondurable goods, and durable goods...
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This note was uploaded on 03/09/2009 for the course ECON 102 taught by Professor Drozd during the Fall '08 term at Wisconsin.
- Fall '08