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UD - ECON 103011 - Exam 2 Study Guide - Study Guide

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UD - ECON 103011 - Exam 2 Study Guide - Study Guide

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Exam 2 Study Guide

Chapter 7
•  National income accounting-the techniques used to measure the overall
production of a country’s economy •  GDP-defines output as a dollar value for all final goods and services produced within the borders of one country •  Intermediate goods-products that are purchased for resale or further processing or manufacturing •  Final goods-products that are purchased by their end users
•  Multiple counting-including in the GDP the value of intermediate goods as well
as final goods •  Value added-the market value of a firm’s output less the value of the inputs the firm has bought from others (the value a company has added to a good) •  Public transfer payments-not included in GDP, government payments for welfare and social security •  Private transfer payments-not included in GDP, transfer of money from one individual to another •  Stock market transactions-not included in GDP, buying and selling stocks
•  Expenditures approach-view GDP as the sum of all the money spent in buying all
the goods produced
o  Personal consumption expenditures-the expenditures of a household on
durable and non-durable goods
  Durable goods-products that have expected lives of three years or more
(10% of PCE)
§   Nondurable goods-products with less than three years expected life (30% of PCE) §   Services-the work done by lawyers, hair stylists, doctors, mechanics
(60% of PCE)
o  Gross private domestic investment-all final purchases of machinery, equipment, and tools, all construction, changes in inventory, and money spent of research and development (all included in GDP) o  Net private domestic investment-only investments in the form of added capital (=gross investment – depreciation) o  Government purchases-expenditures for goods and services that government consumes in providing public services, expenditures for publicly own capital (schools and highways), and government expenditures on R&D o  Net exports = exports – imports
o  GDP = personal consumption expenditures + gross private domestic
investment + government purchases + exports - imports •  Income approach-view GDP through understanding the income and rent of the production of all the goods
o  Compensation of employees-wages and income paid by business to
background image o  Rents-income received by households and businesses that supply property resources o  Interest-money paid by private businesses to the suppliers of loans used to purchase capital o  Proprietors’ income-net income of sole proprietor, partnerships, and other unincorporated businesses o  Corporate profits-earnings of corporations
o  Taxes on production and imports-sales tax, excise tax, business property tax,
license fees, and custom duties o  National income-the total of all sources of private income plus government revenue from taxes on production and imports o  Consumption of fixed capital-huge depreciation charge made against private and publicly owned capital each year (money lost to the “consumption” or
use of capital)
•  Net domestic product = GDP – consumption of fixed capital (GDP adjusted for depreciation) •  Personal income-includes all income receive, whether earned or unearned
•  Disposable income-personal income less personal taxes
•  Nominal GDP-real GDP adjusted to one specific year’s value of all goods
o  Price index-measure of the price of a specified collection of goods and services in a given year as compared to the price of an identical collection of
goods and services in a reference year
o  Base year-the year that all prices of the collection of goods are based off of
o  Price index = (price of market basket for a specific year) / (price of same
market basket in base year) o  Real GDP = nominal GDP / price index
Chapter 8
•  Economic growth-an increase in real GDP or GDP per capita over some period of
time •  Real GDP per capita = real GDP / population
•  Rule of 70-provides a quantitative grasp of the effect of economic growth
o  Approximate numbers of years required to double GDP = 70 / annual percentage rate of growth •  Growth has lead to improved goods and services, added leisure, and has had effects on the environment and quality of life •  Modern economic growth-sustained ongoing increases in living standards that can cause dramatic increases in the stand of living within less than a single human lifetime, brought about by the industrial revolution in the 1900’s •  Leader countries-countries that develop and use the most advanced technology
•  Follower countries-countries that use advanced technology that was developed
by leader countries •  Industrial structures that promote modern economic growth o  Strong property rights
o  Patents and copyrights
background image o  Efficient financial institutions
o  Literacy and widespread education
o  Free trade
o  Competitive market system
•  Supply factors-increases in the quantity and quality of natural and human resources, increases in supply of capital goods, and improvements in technology •  Demand factor-to actually achieve higher production potential created when the supply factors increase of improve, households, businesses, and the government must also expand their purchases of goods and services so as to provide a
market for all the new output that can potentially be produced
•  Efficiency factor-to reach its full production potential, an economy must achieve economic efficiency as well as full employment •  Labor productivity-measured as real output per hour of work, total output divided quantity of labor employed to produce it •  Labor-force participation rate-the percentage of the working-age population actually in the labor force •  Growth accounting-the bookkeeping of the supply side elements such as productivity and labor inputs that contribute to changes in real GDP over some
specific period of time
o  Technological advance-accounts for 40% of productivity growth, innovative
as well as managerial advances o  Growth of capital-30% of productivity growth, includes infrastructure (highways and bridges, public transit systems, wastewater treatment
facilities, water systems, airports, educational facilities, and so on)
o  Education and training-15% of productivity growth, includes human capital (the knowledge and skills that make a person more productive) o  Economies of scale and resource allocation-15% of productivity growth •  Information technology-new and more efficient ways of delivering and receiving information through the use of computers, WiFi, wireless phones, and the Internet •  Start-up firm-a firm focused on creating and introducing a particular new product or employing a specific new production or distribution method •  Increasing returns-a situation in which a given percentage increase in the amount of inputs a firm uses leads to an even larger percentage increase in the
amount of output the firm produces
•  Network effect-the idea that each new product sold has an increased value (ex. cell phones and the Internet) •  Learning by doing-perfecting new production techniques Chapter 9
•  Business cycle-recurring increases and decreases on the level of economic
activity over periods of years
o  Peak-the point in the business cycle at which business activity has reached a
temporary maximum, the point at which the recession begins

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School: University of Delaware
Department: Economics
Course: Macroeconomics
Professor: Professor Abrams
Term: Winter 2016
Tags: Macroeconomics
Name: Exam 2 Study Guide
Description: Chapters 7, 8, 9, and 10
Uploaded: 03/31/2016
7 Pages 49 Views 39 Unlocks
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