ECO201_terms3.docx - ECO201u2014Module 3 Terminology...

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ECO201—Module 3 Terminology Directions : Define each of the terms below and evaluate the significance of each term to the topics presented within the textbook. Chapter 8 Term Definition Significance National income accounting A measurement system used to estimate income and its components. One approach to measuring an economy’s aggregate performance Total income The yearly amount earned by the nation’s resources (factors of production). Includes wages, rent, interest payments, and profits received by workers, landowners, capital owners, and entrepreneurs, respectively Total income is also defined as the annual cost of producing the entire output of final goods and services Final goods and services Goods and services that are at their final stage of productions and will not be transformed into yet other goods or services. Gross domestic product (GDP) The total market value of all final goods and services produced during a year by factors of production located within a nation’s borders All the measures of domestic product and income are specified as rates measured in dollars per year, a measure of the value of production in term of market prices and an indicator of economic activity Intermediate goods Goods used up entirely in the production of final goods Although grain is the final product for a farmer, it is sold to make bread which is the final product for the nation Value added The dollar value of an industry’s sales minus the value of intermediate goods used in production Total value added is equal to the sum of all income payments Expenditure approach Computing GDP by adding up the dollar value at current market prices of all final goods and services To measure GDP, look at the flow of expenditures, which consists of consumption, investment, government purchases of goods and services, and net expenditures in the foreign sector (net exports).

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