econ q4 test prep

GDP

 the dollar amount of all final goods and services produced within a country’s national borders in a year

national income accounting

a system of statistics and accounting that keeps track of all investment, consumption, production, and savings

4 things that are excluded from GDP

1. intermediate products (blank tshirt sold to a design company)

2. secondhand products (stuff at thrift stores)

3. nonmarket transactions (household labor, volunteer work)

4. underground economy (unreported and illegal stuff)

gross national product

the dollar value of all final goods, services, and structures produced in one year with labor and property supplied by a country’s residents (not necessarily in the nation)

net national product/GNP less depreciation

GNP minus depreciation - measures total value of country’s final goods and services produced within a year, accounting for the wear and tear of capital goods used in production

national income

the income that is left after all taxes except for corporate taxes are subtracted from net national product

personal income

the total income going to consumers before individual income taxes are subtracted

disposable personal income

the amount of money the consumer sector has at its disposal after individual income taxes are subtracted

4 sectors

consumer, government, foreign, investment

output-expenditure model

GDP = C + I + G + (X-M)

market basket

a representative selection of commonly purchased goods and services

consumer price index

reports on price changes of 90,000 items in 364 categories

producer price index

measures price changes made by domestic producers for their inputs

factors affecting population growth

1. fertility

2. life expectancy

3. net immigration levels

growth triangle

a table that shows annual compound rates of growth between selected periods of time

tax base

the incomes and properties that may be taxed

lorenz curve

a curve that shows how much the actual distribution of income varies from an equal distribution

reasons for income inequality (5)

1. education

2. wealth

3. discrimination

4. ability - some people earn more income because they have certain natural abilities (ex. athletes)

5. monopoly power - unions have been able to get higher wages for their employees

poverty guidelines

annual dollar amounts used to evaluate the money income that families and unrelated individuals receive

earned income tax credit (eitc)

provides federal tax credits and sometimes cash to low-income workers

enterprise zones

areas where companies can locate free of some local, state, and federal tax laws and other operating restrictions

workfare

a program that requires welfare recipients to exchange some of their labor for benefits

negative income tax

a proposed type of tax that would make cash payments to certain groups below the poverty line

proportional tax

everyone pays the same %

progressive tax

the higher amount of money you make, the higher you are charged in terms of tax percentage

regressive tax

the lower amount of money you make, the higher the percentage of taxes you are charged

who runs the federal reserve? how long are their terms and why?

7 member board of governors; 14 years to insulate the board members from short term political pressures

expansionary fiscal policy

increasing government spending, reducing taxes

contractionary fiscal policy

decreasing government spending, increasing taxes

easy money policy

results in expansion of economy; lowering interest rates, increasing money supply

tight money policy

results in contraction of economy (recession phase); increasing interest rates, decreasing money supply; makes credit hard to obtain

easy money policy with the tools of monetary policy

1. fed lowering discount rate (interest rate) —> commercial banks borrow more money —> lower their interest rates for us normal people —> more spending —> expansion of economy

2. fed buys bonds/securities —> more money supply in banks —> more ppl borrow money bc lower interest rates with higher money supply —> more spending —> expansion of the economy

3. fed lowers reserve requirement —> more money supply

tight money policy with the tools of monetary policy

1. fed increasing discount rate —> commercial banks borrow less money —> money supply decreases —> less borrowing —> reduces inflation and contracts economy

2. fed sells bonds/securities to banks —> less money supply bc bonds aren’t liquid —> less money available so higher interest rates —> less spending —> contraction of economy

3. fed increases reserve requirements —> less money supply

crowding out

Increased government borrowing to finance its spending can lead to higher interest rates, which decreases the money supply available for private sector investments.

classical economics

gov should not get involved