Test 3 Review - ECON 2100 Test 3 Review Key Terms Concepts...

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ECON 2100 Ch. 15 – Measuring a Nation’s Income Microeconomics – the study of how individual households and firms make decisions and how they interact in markets Macroeconomics – the study of the economy as a whole; economy-wide phenomena, including inflation, unemployment, and economic growth Gross Domestic Product (GDP) – the market value of all final goods and services produced within a country in a given time period; only counts the first production/sale, buying a car from the dealer is counted but when someone sells their car to another it is not counted. Only goods/services produced within a country count for that country Market Prices – measure the amount people are willing to pay for different goods, they reflect the value of goods; used to find GDP Intermediate Good – goods used as inputs in the production of final goods; not counted in GDP as this would cause double counting, their value is absorbed into the final good. i.e. steel, raw materials. However, intermediate goods not used and placed in inventory are counted as GDP until used. Final Good – goods that are ultimately consumed; a car is a final good, the tires and components are intermediate goods The Components of GDP: Y = C+I+G+NX Y: GDP C: consumption I: investment G: government purchases NX: net exports Consumption – spending by households on goods and services, with the exception of purchases of new housing; household spending on education is also included Investment – spending on capital equipment, inventories, and structures, including household purchases of new housing; the purchase of goods that will be used in the future to produce more goods and services
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Government purchases – spending on goods and services by local, state, and federal governments; includes salary payments to government workers, but does not include benefits payments (these are called transfer payments – they don’t ‘buy’ anything) Net Exports – spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports); exports – imports = NX Nominal GDP – the production of goods and services valued at current prices Real GDP – the production of goods and services valued at constant prices; ‘constant price’ refers to the price of an item in a particular base year GDP Deflator – a measure of the price level calculated as the ratio of nominal GDP to real GDP; GDP deflator = Nominal GDPReal GDP x100; used to measure inflation Inflation – describes a situation in which the economy’s overall price level is rising Inflation Rate - the percentage change in some measure of the price level from one period to the next; Inflation rate in year 2 = 100*(GDP deflator in year 2 – GDP deflator in year 1)/GDP deflator in year 1 Ch. 16 – Measuring the Cost of Living Consumer Price Index (CPI) – a measure of the overall cost of the goods and services bought by a typical consumer Calculating the CPI –
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Test 3 Review - ECON 2100 Test 3 Review Key Terms Concepts...

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