Chapter 12 Macroeconomic Performance

What is macroeconomics?

the economy as a whole, using measurements of output, income, prices & employment

What is Gross Domestic Product (GDP)?

dollar value of all goods, services, & structures produced within a country’s borders in one year

How is the GDP calculated?

• multiply all goods & services produced in 12 month period by their prices then add them up

• number of goods & services estimated every three months (quarterly) and then revised

What is excluded from GDP?

1. intermediate products

2. second hand sales

3. non market transactions

4. underground economy

What are intermediate products?

goods used to make other products already counted in GDP

examples: flour, sugar, replacement tires

What are second hand sales?

selling used items

example: used car sales

What are nonmarket transactions?

economic activities that don’t generate expenditures in market

examples: mowing your lawn, doing your own home repairs

What is underground economy?

gambling, smuggling, drugs, garage sales, bake sales, flea markets, farmers’ markets, etc. (cash payments which are hard to trace)

What is gross national product (GNP)?

total dollar value of all goods, services, & structures produced in one year by a country’s residents regardless of where production takes place; largest measure of nation’s income

How is GNP calculated?

add all payments received by country, then subtract payments made to foreign-based businesses located in that country

What is population the source of?

labor & the primary consumer of goods; utility of population statistics

What is the Census?

taken every 10 years to update population growth, population shifts, predict changes in infrastructure (highways, mass transit, communication systems, utilities, etc.)

What is fertility rate?

number of births that 1000 women are expected to undergo in their lifetime

What is life expectancy?

average lifespan of a person

What is net immigration?

overall population change caused by people moving in/out of the country

What factors affect population growth?

1. fertility rate

2. life expectancy

3. net immigration

What is the poverty threshold?

benchmark that measures how much income people receive (aka poverty line)

What does the poverty threshold help the government with?

determining who qualifies for federal aid (food stamps, Head Start program, etc.)

What are reasons for income inequality?

1. education

2. wealth: top 1/5 own 75% of all wealth in U.S/ Bottom 2/5 own less than 2% of all wealth

3. changes in tax laws

4. decline of unions; less manufacturing in U.S. than 40 years ago

5. more lower paying service jobs: movie theaters, restaurants, etc.

6. discrimination

7. changing family structure: shift from 2 parent to more one parent incomes

What are anti poverty programs?

1. welfare

2. tax credits

3. enterprise zone

4. workfare

What are examples of welfare

• income assistance (unemployment, disability)

• food stamps

• Medicaid

• child abuse protection, foster care, job training, day care, etc.

What are food stamps?

government coupons that can be redeemed for food

What is Medicaid?

medical insurance for low-income people

What are tax credits?

applied to federal/state taxes for working families

What are enterprise zones?

companies given special tax/financial breaks to encourage them to set up shop in impoverished areas and hire local workers

What is workfare?

people who receive welfare work for their benefits