Principles of Economics, Chapter 17: Prosperity

Final exam review

When was the Great Depression?

1929-1942

When was World War 2?

1942-1945

What is the Employment Act of 1946?

Foreign government is responsible to achieve and maintain a healthy economy.

What are the 3 criterias of a healthy economy?

1. Low inflation (Goal: $2 increase/year)

2. Low unemployment (Goal: 3-5%)

3. Steady economy (Goal: 3%)

What is Gross Domestic Product (GDP)?

The market value of all new, finished goods/services produced in one nation in one year. (ex. If a vehicle is produced in Dec 2023 but sold in March 2024, it would go towards the GDP of 2023 since it was produced that year)

What is the GDP of the US?

$27 trillion

What 5 items are not included in GDP?

1. Components (ex. tires that come along with a new car)

2. Financial transaction (ex. buying stocks and bonds)

3. Used items (ex. used cars, textbooks, second-hand clothes)

4. Illegal goods (ex. drugs, fake designer jewelry and clothing, etc.)

5. Economic good/bad: Naturally induced weatherly events (ex. Growing more blueberries = increase in GDP while Hurricane Katrina caused a decrease in GDP)

What is the GDP formula?

GDP = C + I + G + Nx

What do the components of the GDP formula stand for?

1. C = Household consumption; 70% of GDP (cars, appliances, lawn equipment, etc.)

2. I = Business investments; 18% of GDP (new software, etc.)

3. G = Government spending; 17% of GDP (vehicles, satellites, food, tanks, etc.)

4. Nx = Net imports; -5% of GDP

Why is Net imports (Nx) at -5% of our GDP?

The US imports more goods/services than it exports, making the Nx at -5% which decreases our GDP.