Ch 7: GDP and the CPI Flashcards

These flashcards cover key vocabulary from Chapter 7 (22) regarding GDP, CPI, and the measurement of the macroeconomy.

National income and product accounts

A set of numbers, also known as national accounts, that keep track of the flows of money between different parts of the economy.

Stock

A share in the ownership of a company held by a shareholder.

Bond

Borrowing in the form of an IOU that pays interest.

Government transfers

Payments from the government that are received by households.

Disposable income

Total household income minus taxes; this is available to spend on consumption or to save.

Private savings

Disposable income that is not spent on consumption; it is equal to disposable income minus consumer spending.

Financial markets

The banking, stock, and bond markets that channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing.

Government purchases of goods and services (G)

Spending by the government paid for by tax receipts as well as by government borrowing.

Exports (X)

Goods and services that generate an inflow of funds into the country from the rest of the world.

Imports (IM)

Goods and services that lead to an outflow of funds to the rest of the world.

Inventories

Stocks of goods and raw materials held to facilitate business operations.

Investment spending

Spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories.

Final goods and services

Goods and services sold to the final, or end, users.

Intermediate goods and services

Goods and services—bought from one firm by another firm—that are inputs for production of final goods and services.

Gross domestic product (GDP)

The total value of all final goods and services produced in the economy during a given year, not including the value of intermediate goods.

Aggregate spending

The sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports ($C + I + G + X - IM$).

Value added

The value of a firm's sales minus the cost of intermediate goods used in production.

Gross national product (GNP)

The total factor income earned by residents of a country, which includes factor income earned abroad by residents and excludes factor income earned by foreigners within the country.

Real GDP

The total value of the final goods and services produced in the economy during a given year, calculated using the prices of a selected base year.

Nominal GDP

The value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced.

Chained dollars

The method of calculating changes in real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base year.

GDP per capita

A measure of average GDP per person.

Aggregate price level

A measure of the overall level of prices in the economy.

Market basket

A hypothetical set of consumer purchases of goods and services used to measure the aggregate price level.

Price index

The ratio of the current cost of a market basket to the cost in a base year, multiplied by $100$.

Inflation rate

The yearly percentage change in a price index, typically based on the Consumer Price Index.

Consumer Price Index (CPI)

The most common measure of the aggregate price level, which measures the cost of the market basket of a typical urban American family.

Producer Price Index (PPI)

A measure of the cost of a typical basket of goods and services purchased by firms.

GDP deflator

A measure of the price level calculated as $100$ times the ratio of nominal GDP to real GDP for a given year.