Macro Unit 1/2: Circular Flow and GDP

economics

the study of how to allocate scarce resources among competing ends

macroeconomics

the branch of econ that deals with the whole economy and issues that affect most of society

microeconomics

branch of econ that looks at decision-making at the firm, household, and individual levels

scarcity

occurs because our unlimited desire for goods/services exceeds our limited ability to produce them due to time and resources

opportunity cost

the value of the best alternative sacrificed as compared to what actually takes place

production possibility curve

used to illustrate opportunity cost (ex. guns and butter)

CELL

capital, enterprise, labor, land

factors of production

the inputs/resources used to produce goods and services in an economy, CELL

specialization

having people with different abilities specialize in what they’re good at, enhancing productivity

comparative advantage

when a country can produce a good at a lower opportunity cost than another country

absolute advantage

ability for an individual, company, or country to produce more of a certain good than its competitors using the same amount of resources

demand curve

displays relationship price and quantity demanded of a good within a given period

law of demand

states that as the price of a good rises, the quantity of that good demanded by consumers falls

supply curve

shows relationship between price and quantity supplied by that firm in a given period

law of supply

states that as the price increases, quantity of a good supplied in a given period will increase

GDP

the total value of all final goods and services produced in a year within a country

national income

the sum of income earned by the factors of production owned by a country’s citizens

personal income

the money income received by house-holds before personal income taxes are subtracted

disposable income

personal income minus personal income taxes

expenditure approach

GDP = C + I + G + NX

income approach

expenditures on GDP ultimately become income, so NI can be modified slightly to arrive at GDP (GDP = NI + Depreciation - Subsidies + Net income of foreigners)

depreciation

the decline in the value of capital over time due to wear or obsolescence

subsidy payments

made by government to worker’s income, but are not made in exchange for goods and services, not in GDP

net income of foreign workers

accounts for the act that national income includes the income of all citizens, whereas GDP includes the value of goods produced domestically by anyone

net domestic product

GDP minus depreciation, indicates how much output is left over

aggregate income/expenditure

aggregate income = aggregate expenditure = GDP