ECON 101 Study Guide - Midterm Guide: Xm Satellite Radio, Barter, W. M. Keck Observatory

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1 Oct 2019
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Income is paid to the four resources used to produce goods and services
1) Entrepreneurial ability 2) Land 3) Labor 4) Capital
In the form of payments made through 1) Profit 2) Rent 3) Wages 4) Interest
Since 1975, the United States has imported more than it has exported
Imports are not counted in nominal GDP because they were produced elsewhere
Expenditure Approach:
GDP = Consumption + Investment + Government Purchase + Net Exports
GDP = C + I + G + NX
Consumption: the sum of durable goods, nondurable goods, and services
Investment: the sum of nonresidential fixed, residential fixed, and inventory investment
Government Purchases
National Income = Rent + Wages + Interest + Profit
Income Approach:
GDP = National Income + Indirect Business Taxes + Depreciation + Net Foreign Interest
GDP excludes activities that occur outside formal markets, goods traded through barter, and
black markets; GDP underestimates the actual amount of output produced in an economy
We do not include tax revenue in calculating nominal GDP; tax revenues are
useful for helping us calculate budget position, determining whether it is running
a budget surplus of budget deficit; but when we are calculating output, tax
revenues are not an expenditure on final goods and services so we omit them
Secondhand sales represent the reallocation of past production that was already counted as part
of GPD in another year
Government purchases”
range between physical government equipment and manual labor; when the government hires
labor, it is directly purchasing labor services, so salaries are included in government purchases
category of the annual GDP.
a fighter jet nuclear submarines salaries for government officials
Transfer payments”
are not included in government purchases because the government provides money directly to
the people; the people who receive the payments make purchases with the money they receive.
Those purchases are included in the GDP; the transfer of money is not.
unemployment payments social security payments
Net Investment is the different between gross investment and depreciation of capital.
NI = I Depreciation
Net Exports is equal to exports minus imports
NE = X M
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