MICRO MIDTERMS

• National income accounting


  A set of rules and definitions for measuring economic activity in the aggregate economy – that is, in the economy as a whole
• Gross Domestic Product (GDP)


  The total value of all final goods and services produced in an economy in a one-year period
• Gross National Product (GNP)


  The aggregate final output of citizens and businesses of an economy in one year
• GDP


  Output produced within a country's borders
• GNP


  Output produced by a country's citizens
• Net foreign factor income

  Income from foreign domestic factor sources minus foreign factor incomes earned domestically
• Calculating GDP


  1. Add together millions of goods and services

  2. Weight each good and service by its price

  3. Multiply quantities by prices to get value measures

  4. Add all value measures to arrive at GDP
• GDP


  A flow concept, reported quarterly on an annualized basis
• Wealth accounts


  A balance sheet of an economy's stocks of assets and liabilities
• Final output


  Goods and services purchased for final use
• Intermediate products


  Used as input in the production of some other product
• Eliminating intermediate goods


  1. Calculate only final output

  2. Use the value added approach
• Value added


  The increase in value that a firm contributes to a product or service, calculated by subtracting intermediate goods from the value of its sales
• Selling your two-year-old car to a neighbor does not add to GDP
• Selling your car to a used car dealer who then sells your car to someone else for a higher price, adds to GDP
• Selling a stock or bond does not add to GDP
• The stock broker's commission from the sales does add to GDP
• Social security payments, welfare payments, and veterans' benefits, are not included in GDP
• Only the cost of transferring is included in GDP
• The work of unpaid housespouses does not appear in GDP calculations
• Expenditure approach


  One of the two methods of calculating GDP, shown on the bottom half of the circular flow

  
• Income approach


  One of the two methods of calculating GDP, shown on the top half of the circular flow
• The equality of output and income is an accounting identity in the national income accounts
• Components of GDP (expenditure approach)


  • Consumption
  • Investment
  • Government spending
  • Net exports
• Personal consumption expenditures


  Payments by households for goods and services
• Gross private investment


  Business spending on equipment, structures, and inventories
• Depreciation


  The decrease in an asset's value due to it wearing out
• Net private investment


  Gross private investment minus depreciation
• Government expenditures


  Government payments for goods and services or investment in equipment and structures
• Net exports


  Exports to foreign nations minus spending on imports
• Net domestic product (NDP)

  GDP adjusted for depreciation
• National income


  The total income earned by citizens and businesses in a country in one year, consisting of employee compensation, rent, interest, and profits
• Personal income (PI)


  National income plus net transfer payments from government minus amounts attributed but not received
• Disposable personal income (DPI)


  Personal income minus personal income taxes and payroll taxes
• Per capita GDP


  GDP divided by population, used to compare nations' GDP
• Purchasing power parity


  Adjusts for different relative prices among nations before making GDP comparisons
• Nominal GDP


  GDP calculated at existing prices
• Real GDP


  Nominal GDP adjusted for inflation
• Real GDP is important to society because it measures what is really produced
• Calculating real GDP


  Divide nominal GDP by the GDP deflator