Introduction to Economics and GDP

What is microeconomics?

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

What is macroeconomics?

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

What is the business cycle?

Alternating periods of economic expansion and economic recession.

What is economic growth?

The ability of an economy to produce increasing quantities of goods and services.

What does the inflation rate measure?

The percentage increase in the price level from one year to the next.

During what phase of the business cycle does total production and employment increase?

Expansion.

During what phase of the business cycle does total production and employment decrease?

Recession.

What is GDP?

Gross Domestic Product, the market value of all final goods and services produced in a country during a period of time.

What are final goods and services?

Goods and services purchased by a final user and not included in the production of any other good or service.

What is the difference between final and intermediate goods?

Final goods are sold to the end user, while intermediate goods are used in the production of final goods.

Why is GDP measured using market values?

To avoid adding together quantities of diverse goods and services, establishing a common measure for total production.

What is real GDP?

The value of final goods and services evaluated at base-year prices, adjusted for inflation.

What is nominal GDP?

The value of final goods and services evaluated at current-year prices, without adjusting for inflation.

How is economic growth typically measured?

Through increases in real GDP over time.

What are consumption expenditures?

Total spending by households on goods and services, excluding new houses.

What is meant by net exports?

The value of exports minus the value of imports.

What are transfer payments?

Payments by the government to households for which the government does not receive a new good or service in return.

What is the significance of the circular-flow diagram?

It illustrates the flow of spending and money in the economy, showing interactions among households, firms, and governments.

What are the four major components of GDP?

Consumption, investment, government purchases, and net exports.

What effects do increases in crime have on GDP?

Increased spending on security can raise GDP while reducing overall well-being.

What does GDP not account for in terms of social well-being?