GOV & ECON: Unit 5- Chapters 12 & 13

National Income Accounting
Collects statistics on production, income, investments, and savings and it is part of the commerce department.

Gross Domestic Product
The dollar value of all final goods produced within a country’s borders in a given year.

What is excluded from GDP?
Intermediate goods and used goods.

What is the difference between the expenditure approach and the income approach?
The expenditure approach is how much people spend while the income approach is what adds up all the earnings in an economy.

Durable Goods
Goods that last a long time.

Non-Durable Goods
Goods that are consumed quickly.

What is the difference between nominal and real GDP?
Nominal uses the current prices to calculate GDP while Real GDP is where GDP adjusts for inflation and population, which is way more accurate.

What things are not taken into account for GDP?
Non-market activities (under the table), “underground” economy, negative externalities, and the quality of life.

Gross National Product
The market value of all goods and services produced by Americans in a given year.

Aggregate Supply
A supply curve for the whole economy.

Aggregate Demand
A demand curve for the whole economy.

Aggregate Equilibrium
The point at which supply and demand curve meet.

What are phases of the business cycle?
Expansion, peak, contraction, trough, and recession, depression, and stagflation.

Expansion
Economic growth.

Peak
The high point of expansion.

Concentration
Economic growth slows and unemployment usually rises.

Trough
The lowest point of concentration.

Recession, depression, and stagflation
Recession is prolonged economic contraction, depression is deep, long-lasting recession, and stagflation is a decline in real GDP combined with a rise in inflation.

What keeps a business cycle going?
Business investment, interest rate & credit, consumer & expectations, and external shocks.

Business Investment
Invest in expansion or slow down to meet falling demand.

Interest rate & Credit
Can encourage or discourage borrowing and investment.

Consumer & Expectations
How will the economy be in the future?

External Shocks
Oil productions & prices and natural disasters.

What are leading factors of business cycle forecasting?
Stock market, interest rates, housing starts, changes in inventories, and new orders for consumer goods.

How did the Great Depression play a role in business cycles in American Industry?
It was the most severe economic breakdown in history that lasted from 1929-1941.

What was the later recession?
In 1970-OPEC & oil shocks, in 1980s-high interest rates, in 2001-economic recession (9/11), and in 2007-housing crisis.

How do you measure economic growth in GDP & population growth?
Real GDP per capital (per person).

How do you measure economic growth in GDP & the quality of life?
Where is the money? Standard of living depends on income distribution.

Capital Deepening
Putting more money into the economy via technology education and training improves the choice of a better economy in the future and this can or physical or human capital.

Savings & Investment
Income not used for consumption is savings and surviving rates is disposable income that is saved.

Population Growth
Larger population can lead to lower standards of living.

Government
Tax policies can reduce or expand saving & investment and government policies can help capital deepening.

Foreign Trade
Trade deficits of surpluses.

What is technological progress?
An increase in efficiency gained by using technology, measuring technology progress, causes of technology progress, education and experience, & natural resource use.

Measuring technological progress
Adds approximately 1% per year to GDP.

Causes of Technological Progress
Scientific research, innovation, and scale of the market. Larger markets provide more incentive for innovation.

Natural Resource Use
Leads to greater efficiency, more creative uses for scarce resources.

What are the types of unemployment?
Frictional, seasonal, structural, cyclical, and technological.

Frictional
Between jobs-short term.

Seasonal
Stanislaus county- depends on the season or weather.

Structural
Hardest to overcome, abilities are no longer in demand (laid off), and retraining or re-education are often needed.

Cyclical
Related to savings in the business cycles.

Technological
Technology replaces workers.

How do they measure unemployment?
It is determined by statistics and surveys, such as the Bureau of Labor Statistics.

Why does it understate employment?
Does not count “discouraged” workers, hard to track the homeless, and part-time workers are counted.

Zero unemployment
It is almost impossible and can even be undesirable. Most experts agree that 4.5% if the lowest rate.

Underemployment
Working part-time or for a job you are underqualified for.

Discouraged workers
Workers who gave stopped looking for jobs.

Effects of terrorism
Cost was 1.5 to 2 million jobs and largest drop off was in the transportation industry.

Inflation
A general rise in prices.

Purchasing Powers
The ability to purchase goods and services and inflation lowers purchasing power.

Price Indexes
A measurement that shows how prices change over time.

What is price indexes used for?
Consumers and government use them to make economic decisions.

The Consumer Price Index (CPI)
Reports on price change for 90,000 items in 364 categories and this is called a “market basket”, which is a representative collection of goods and services.

How does price indexes play a role in the inflation rate?
It is used to calculate the inflation rate.

What are types of inflation?
Core inflation rate and hyperinflation.

Core Inflation Rate
Inflation rate excluding food and energy prices.

Hyperinflation
Inflation that is out of control.

What are some causes of inflation?
The quantity theory, demand-pull theory, and cost-push theory.

The Quantity Theory
Too much money in the economy causes inflation and it depends on the total money supply in the economy.

Demand Pull Theory
When demand for goods and services exceed existing supplies, forcing prices to go up.

Cost Push Theory
Products raise prices to meet increasing costs.

What are some effects of inflation?
Purchasing power decreases, income, interest rates, and deflation.

Income
If income keeps up with inflation real wages won’t go down and people on fixed income can be hit hard.

Interest Rates
Inflation eats unto interest rates for investors and lenders.

Deflation
A general lowering of prices, which rarely happens.

The Poverty Threshold
In 2004 there was $18,850 per year for a family of four and 34.5 million Americans are under the poverty line, which is 12.7%.

What does the poverty rate depend on?
Race and ethic origin, type of families, age, & residence.

Race and Ethnic Origin
African-American and hispanic poverty rate are twice the national average.

Types of Families
Single mother families poverty rates are six times the national average.

Age
Poverty rates for children and young adults are significantly higher than the average.

Residence
Inner city residence have higher rates than average.

What are causes of poverty?
Lack of education and training, location, racial and gender discrimination, economic shifts, such as the loss of decent paying manufacturing jobs, & shifts in family structure, such as an increase in single parent families.

The Lorenz Curve
A curve that shows the change in the income distribution.

Income distribution
The gap between the wealthy and the poor in growing and the top 1/5 of the population has 75% of the wealth

Antipoverty Programs
Food stamps, welfare, housing subsidies, social service programs, tax credits, and enterprise zones.

Food Stamps
Transfer in kind payments.

Welfare
Transfer payments, such as Temporary Aid for Needy Families (TANF) which calls for a shift from welfare to workfare.

Housing Subsidies
Section Eight

Social Service Programs
Foster care employment assistance, day care, job training, and family planning.

Tax Credits
Tax breaks for low income families.

Enterprise Zones
Giving tax breaks to companies that locate in impoverish areas.

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