econ ch. 12

macroeconomics

the economy as a whole, using measurements of output, income, prices & employment

Gross Domestic Product (GDP)

dollar value of all goods, services, & structures produced within a country’s borders in one year

how gdp calculated

• Multiply all goods & services produced in 12 month period by their prices then add them up

• Number of goods & services estimated every three months (quarterly) and then revised

Excluded from GDP

• intermediate products

• second hand sales

• nonmarket transactions

• underground economy

intermediate products

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* goods used to make other products already counted in GDP
* Flour, sugar, replacement tires

second hand sales

selling used items

* Used car sales

nonmarket transactions

economic activities that don’t generate expenditures in market

* Mowing your lawn, doing your own home repairs

undeground economy

gambling, smuggling, drugs, garage sales, bake sales, flea markets, farmers’ markets, etc. (cash payments which are hard to trace)

Gross National Product (GNP)

Total dollar value of all goods, services, & structures produced in one year by a country’s residents regardless of where production takes place; largest measure of nation’s income

how calculate gnp

Add all payments received by country, then subtract payments made to foreign-based businesses located in that country

population

source of labor & the primary consumer of goods; utility of population statistics

purposes of census

to update population growth, population shifts, predict changes in infrastructure (highways, mass transit, communication systems, utilities, etc.)

factors affecting population growth

• fertility rate

• life expectancy

• net immigration

fertility rate

number of births that 1000 women are expected to undergo in their lifetime

life expectancy

average lifespan of a person

net immigration

overall population change caused by people moving in/out of the country

poverty threshold

benchmark that measures how much income people receive (aka poverty line)

* Helps the government determine who qualifies for federal aid (food stamps, Head Start program, etc.)

reasons for income inequality

• Education

• Wealth

• Changes in tax laws

• Decline of unions; less manufacturing in U.S. than 40 years ago

• More lower paying service jobs: movie theaters, restaurants, etc.

• Discrimination

• Changing family structure:

wealth distribution

top 1/5 own 75% of all wealth in U.S.

* Bottom 2/5 own less than 2% of all wealth

welfare

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* economic/social assistance from government
* Income assistance
* Food stamps
* Medicaid
* Child abuse protection, foster care, job training, day care, etc.

income assistance

(unemployment, disability)

food stamps

government coupons that can be redeemed for food

medicaid

medical insurance for low-income people

tax credits

applied to federal/state taxes for working families

enterprise zone

companies given special tax/financial breaks to encourage them to set up shop in impoverished areas and hire local workers

workfare

people who receive welfare work for their benefits