Econ 1000 Chapter 7

gross domestic product

the total market value of all final goods and services produced within a society over a certain period of time

intermediate good

a good used in the production process that is not a final good or service

consumption expenditures

purchases of newly produced goods and services by households (denoted by C)

private investment expenditures

purchases of newly produced goods and services by firms (e.g., spending on new plants and equipment) (denoted by I)

government purchases

purchases of newly produced goods and services by local, state, or federal government (denoted by G)

import

a good or service produced in a foreign country and produced by someone in the home country

export

a good or service produced in the home country and sold in a foreign country

net export

export minus imports (denoted by NX)

trade deficit

the excess of imports over exports

trade surplus

the excess of exports over imports

real GDP

the value of GDP computed using prices from an arbritrary base year

nominal GDP

the value of GDP computed using current period prices

real GDP per capita

value of real GDP divided by total population of the country

industrially advanced countries (IAC’s)

high income countries with primarily market based economies, large stocks of technologically advanced industrial capital, and a highly educated and skilled workforce (U.S, Norway, Australia, Germany, Japan)

less developed countries (LDC’s)

lower income countries which are held back by some combination of poor economic institutions, undeveloped industrial capital, and/or an uneducated and unskilled workforce (India, Ghana, Bangladesh, DRC)

economic development

improvements over time in a society’s quality of life and living standards

economic growth

sustained increases over time in a society’s value of Real GDP (outward shift on PPF, percentage increase in Real GDP)

GDP growth rate

annual percentage change in the value of real GDP

catch-up effect

conjecture that (all other factors fixed), the growth rates of less developed countries will exceed the growth rates of developed countries, allowing the less developed countries to “catch up” over time

rule of 72

the observations that a variable that grows at a constant rate of “X% per period” will double in value in approximately “(72/X) periods”

physical capital

machines, building, factories, and other equipment used in the production process

human capital

the knowledge, education, skills, experience, work ethic, inter-personal skills, and other attributes of workers which determine productivity

technology

the application of scientific and engineering principles to the problem of production

vicious cycle of poverty hypothesis

poor countries will remain poor since they do not have sufficient resources available to make the investments in capital which are necessary for economic growth

capital flight

tendency for wealthy people in poor countries to invest their financial capital abroad instead of at home

brain drain

tendency for the most highly talented people from developing countries to become educated and then move to an already wealthy country

rule of law

environment in which property rights and contracts are respected and administered fairly and transparently, without favoritism

crony capitalism

environment in which well-connected unscrupulous business people use corrupt political systems to their advantage in order to obtain preferential treatment from government (e.g., government contracts, subsidies, bailouts, tax loopholes)