econ exam 2 pt1

top half of the Circular Flow Model

represents product markets

bottom half of the circular flow model

consists of the factor markets

GDP

the total monetary value of all finished goods and services produced within a country's borders in a specific time period.

Transfer payment

A government payment to individuals not in exchange for goods or services currently produced.

final goods

Finished goods and services produced for the ultimate user.

Intermediate goods

Goods and services used as inputs for the production of final goods.

Circular flow model

A diagram showing the exchange of money, products, and resources between households and businesses.

Flow

A rate of change in a quantity during a given time period, such as dollars per year. For example, income and consumption are flows that occur per week, per month, or per year.

Stock

A quantity measured at one point in time. For example, an inventory of goods or the amount of money in a checking account.

Expenditure approach

The national income accounting method that measures GDP by adding all the spending for final goods during a period of time.

Income approach

The national income accounting method that measures GDP by adding all incomes during a period of time, including compensation of employees, rents, net interest, and profits.

Indirect business taxes

Taxes levied as a percentage of the prices of goods sold and therefore collected as part of the firm’s revenue. Firms treat such taxes as production costs. Examples include general sales taxes, excise taxes, and customs duties.

National income (NI)

The total income earned by resource owners, including wages, rents, interest, and profits. NI is calculated as gross domestic product minus depreciation of the capital worn out in producing output.

Personal income (PI)

The total income received by households that is available for consumption, saving, and payment of personal taxes.

Nominal GDP

The value of all final goods based on the prices existing during the time period of production.

Real GDP

measures the actual quantity of goods and services produced, adjusted for inflation.

GDP chain price index

A measure that compares changes in the prices of all final goods during a given year relative to the prices of those goods in a base year. This index is also called GDP price index or simply GDP deflator.