CP Unit 3 Study Guide: Measuring Economic Performance and Fiscal Policy

Flashcards for reviewing key terms and concepts related to measuring economic performance and fiscal policy.

What is used to determine GDP?

A common measure of value.

What are examples of transfer payments?

Payments like social security or unemployment benefits where no goods or services are exchanged.

What happens to the value of the dollar when inflation occurs?

The value of the dollar decreases.

What is the CPI?

Consumer Price Index; a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

What is the PPI?

Producer Price Index; measures the average change over time in the selling prices received by domestic producers for their output.

What typically follows an increase in the PPI?

An increase in the CPI (Consumer Price Index).

What is real GDP?

GDP adjusted for inflation.

Why is NDP a better tool in measuring the economy than GDP?

NDP accounts for depreciation of capital, providing a more accurate picture of sustainable economic activity.

What is the primary characteristic of the business cycle?

Fluctuations between expansion and contraction.

What are the four factors that are linked to business fluctuations?

Business investment, interest rates, consumer expectations, and external shocks.

What are examples of leading indicators?

New orders for durable goods, building permits, stock market performance.

What are examples of lagging indicators?

Unemployment rate, inflation rate, prime interest rate.

What are examples of coincident indicators?

GDP, personal income.

Total income earned by everyone in the economy

National Income

A general increase in prices and fall in the purchasing value of money

Inflation

Economic factors that reflect past economic performance and change after the economy has already begun to follow a particular pattern or trend.

Lagging Indicators

What is the Fed?

The Federal Reserve System

Measures that change before the economy starts to follow a particular pattern or trend.

Leading Indicators

What is GDP?

Gross Domestic Product

What is the Business Cycle

Alternating periods of economic expansion and contraction

A fixed list of commonly purchased products used to track inflation.

Market Basket

A period of temporary economic decline during which trade and industrial activity are reduced.

Recession

A long and severe recession in an economy or market.

Depression

A phase of the business cycle in which the economy is in decline.

Contraction

A phase of the business cycle in which the economy is growing.

Expansion

The real goods and services that money can buy; determines the value of money.

Purchasing Power

A bookkeeping system that a national government uses to measure the level of the country's economic activity in a given time period.

National Income Accounting

An individual's total earnings from wages, investment enterprises, and other ventures.

Personal Income

The amount of money that a person has available to spend or save after income taxes.

Disposable Personal Income

An annual measure of the economic output of a nation that is adjusted to account for depreciation.

Net Domestic Product

The most flourishing and prosperous period.

Boom/Peak

A low turning point or a bottom.

Trough