Question

Important Vocab

GDP	Currency value of all final goods and services produced within a country’s borders
Real GDP	Currency value of all final goods and services produced within a country’s borders minus the effects of inflation
Inflation	A general rise in the price level of an economy
Consumption	Dollar value of all goods and services purchased by households
Investment	Dollar value of all goods and services purchased by business for the purpose of using in their business
Government Spending	Dollar value of all goods and services purchased by the various agencies of the United States.
Net Exports	Dollar value of all goods and services produced in the United States and shipped to other countries MINUS the value of the goods and services imported from other countries
Aggregate Demand	The amount of goods and services ALL buyers in the economy are willing/able to buy at all the possible price levels
Aggregate Supply	The amount of goods and services ALL companies are willing to produce at ALL possible price levels
GDP Per Capita	Currency value of all final goods and services produced within a country’s borders divided by the population
Imports	Goods and services produced in other countries, then brought to the United States in exchange for currency
Exports	Goods and services produced in the United States, then sent to other countries in exchange for currency
Standard of Living	Intangible concept that seeks to represent a country’s level of economic prosperity. Correlates with GDP growth

                        

Based on the vocab & videos in Chapter 8 complete the following:

What is GDP?

• Currency value of all _____________ goods and services produced

_________________ in a given period

• Total income of a nation
• Measure of nation‟s economic well-being
• Measure of a nation‟s ______________________ from one period to the next
• Most commonly calculated via ____________________

Four components of GDP expenditures

• Consumption: $ amount of goods and services purchased by__________________
  • ONLY counts goods produced in the _____________
  • Examples: __________________________________

• Investment: $ amount spent by business on productive resources and purchases of _________ by consumers! - New machines, new factories, research
  • ____________________________ also counts

• Government: $ amount spent ____________________provided goods and services
  • Example: ______________________________________

• Net exports = _______________________________

Exports: ________________________________________

Imports:________________________________________

GDP = _____ + _____ + _____ + _____

What’s NOT included in GDP?

• Intermediate goods            ¨ Financial transactions
• Used goods            ¨ Household production
• Underground production (black    ¨ Transfer payments market)           

           

                                

What GDP does not tell us:

• Does not measure ___________________
• Does not measure non-monetary output or transactions (e.g., barter, household activities) ¨ Does not take into account desirable externalities, such as ________________

_________________________________

• Does not measure social well-being
• Correlates to standard of living but is _______________________________

       

Scenario	Component of GDP affected: C, I, G, X-M, or NCnot counted	Effect on GDP (increase, decrease, no change)
1. A farmer purchases a new tractor.
2. Businesses increase their current inventories.
3. You spend $7 to attend a movie.
4. Worried about consumer confidence, Ford purchases less sheet metal for cars.
5. A retired man cashes his social security check from the government.
6. A French company purchases a one-year membership to PartyPeople.com, a U.S.-based
website. 7. A person pays $450 a month to rent an apartment.
8. Worried about a recession, people begin saving more money.
9. The U.S. government hires 10 Chinese-language experts from China to train U.S. workers.
10. Government closes school for the month of March.

           

Answer 1

What is GDP?

• Currency value of all final goods and services produced in a country in a given period
• Total income of a nation
• Measure of nation‟s economic well-being
• Measure of a nation‟s economic growth from one period to the next
• Most commonly calculated via expenditure method

Four components of GDP expenditures

Consumption: $ amount of goods and services purchased by households

• ONLY counts goods produced in the current financial year
• Examples: ice cream purchase

Investment: $ amount spent by business on productive resources and purchases of new houses by consumers! - New machines, new factories, research

• Goods inventory also counts

Government: $ amount spent by government provided goods and services

• Example: social security payment

Net exports = Exports-imports

Exports: Goods and services produced in the United States, then sent to other countries in exchange for currency

Imports: Goods and services produced in other countries, then brought to the United States in exchange for currency

GDP = Consmption + investment + government spending + net exports

What’s NOT included in GDP?

· Intermediate goods            ¨ Financial transactions

· Used goods            ¨ Household production

· Underground production (black    ¨ Transfer payments market)           

           

                                

What GDP does not tell us:

• Does not measure inequality.
• Does not measure non-monetary output or transactions (e.g., barter, household activities) ¨ Does not take into account desirable externalities, such as leisure or environment
• Does not measure social well-being
• Correlates to standard of living but is not an actual measure of standard of living

Scenario	component affected	change in GDP
A farmer purchases a new tractor	I	increase
Businesses increase their current inventories	I	increase
You spend $7 to attend a movie	C	increase
Worried about consumer confidence, Ford purchases less sheet metal for cars.	I	decrease
A retired man cashes his social security check from the government	G	increase
A French company purchases a one-year membership to PartyPeople.com, a U.S.-based website	X-M	increase
A person pays $450 a month to rent an apartment	C	decrease
Worried about a recession, people begin saving more money	I	decrease
The U.S. government hires 10 Chinese-language experts from China to train U.S. workers	X-M	decrease
Government closes school for the month of March	G	decrease