The Market System and GDP

Flashcards covering key vocabulary terms related to the market system, circular flow, GDP, and national income accounting.

Economic Resources

Include land, capital, labor, and entrepreneurial ability.

Resource Payments

Correspond to resource categories like rental income, interest income, wages, and profit & loss.

Economic System

A system of production and exchange of goods and services as well as allocation of resources in a society.

Command System

The government owns most property resources and economic decision making occur through a central economic plan.

Market System (capitalism)

There is private ownership of resources, and markets and prices coordinate and direct economic activity.

Circular Flow Model

Shows the interaction between households (resource owners) and businesses (resource users) in the resource and product markets.

Resource Market

Households sell resources to businesses, and businesses buy resources to produce goods and services.

Product Market

Households purchase goods and services, and businesses offer products for sale.

Mixed Economy

Includes the government as an important actor, collecting taxes from households and businesses and providing public goods.

Macroeconomic Objectives

Include economic growth, full employment, price stability, balance of payments stability, and fair distribution of income.

National Income Accounts (NIA)

Measures used to assess the economy’s performance by measuring the flows of income and expenditures over a period of time.

Gross Domestic Product (GDP)

Measures the total market value of all final goods and services produced within a country in a given year.

Final Goods

Finished goods not for resale or further processing.

Intermediate Goods

Goods produced by one firm for use by another firm for resale or further processing.

Value Added

The value of a firm’s output less the value of intermediate goods the firm purchased.

Expenditure Approach

Calculates GDP by summing up all expenditures on output. Y = C + Ig + G + Xn

Income Approach

Calculates GDP by adding up all incomes arising from production of output.

Gross Private Domestic Investment (Ig)

Includes machinery, equipment, tools, all construction as well as changes in inventories.

Net Investment

Gross investment – depreciation/wear and tear of capital

Net Exports (Xn)

Value of exports (X) less imports (M). Xn = X – M