Econ 104 Final Review
Comprehensive Final Test
Aggregate Demand Curve - A curve that shows the relationship between the price level an the
level of planned aggregate expenditures in the economy, holding constant all other factors that
affect aggregate expenditure
Microeconomics - the study of how households and firms maek their choices, how they interact
in markets, and how the governmnet attempts to influence thier choices
Macroeconomics - the study of hte economy as a whole, including topics such as inflation,
unemployment, and economic growth
Business Cycle - alternating periods of economic expansion and economic recession
Expansion - the period of the business cycle duirng which total production an total employment
are increasing
Recession - the period of a business cycle during which total production and total employment
are ddecreasing
Economic Growth - the ability of an economy to produce increasing quantities of goods and
services
Inflation Rate - the percentage increase in teh price level from one year to the next
Gross Domestic Product (GDP) - the market value of all final goods and services produced in a
country during a period of time, typically one year, measured using market values not
quantities, includes only current production
,Final good or service - a good or service purchased by a final user
Intermediate good or service - a good or service that is an input into another good or service,
such as a tire on a truck
factors of production - firms use: labor, capital, natural resources and entrepreneurship to
produce goods and services
Transfer payments - payments by the government to households for which the government
does not recieve a new good or service in return, includes social security, not included in GDP
Components of GDP - includes consumption, investment, government purchases, an net
exports: Y = C + I + G + NX
Consumption - spending by the households on goods and services, not including spending on
new houses
investment - spending by firms on new factories, office buildings, machinery, and additions to
inventories, plus spending by households and firms on new houses
Government Purchases - spending by the federal, state, and local government on goods and
services
Net Exports - exports minus imports
Value Added - the market balue a firm adds to a product, allows them to make the profit
Shortcomings of GDP as a measure of total production - household production (goods an
services people produce by themselvs) and the underground economy (buying and selling of
, goods and services that is concealed from the government to avoid taxes or regulations or
because it is illegal
Shortcomings of GDP as a measure of well being - the value of leisure is not included, not
adjusted for pollution or other negative effects of production, not adjusted for changes in crime
and other social problems, measure the size of the pie but not how it is divided up
Nominal GDP - the value of final goods and services evaluated at current-year prices
Real GDP - the value of final goods and services evaluated at base-year prices
Price Level - a measure of the average prices of goods and services in the economy, calculate %
change in price level by looking at change in GDP deflator
GDP deflator - a measure of the price level, calcuated by dividing nomial GDP by real GDP and
multiplying by 100
Gross National Product (GNP) - value of final goods and services produced by the residences of
the US, even if the production takes place outside of the US
National Income - subtract the value of worn out machinery, equiptment and buildings
(deprication/consumption of fixed capital) from GDP equals national income
Labor Force - the sum of te emplyed and unemployed workers in the economy
Unemployment rate - the percentage of labor force that is unemployed: # unemployed divided
by labor force, multiplied by 100
Comprehensive Final Test
Aggregate Demand Curve - A curve that shows the relationship between the price level an the
level of planned aggregate expenditures in the economy, holding constant all other factors that
affect aggregate expenditure
Microeconomics - the study of how households and firms maek their choices, how they interact
in markets, and how the governmnet attempts to influence thier choices
Macroeconomics - the study of hte economy as a whole, including topics such as inflation,
unemployment, and economic growth
Business Cycle - alternating periods of economic expansion and economic recession
Expansion - the period of the business cycle duirng which total production an total employment
are increasing
Recession - the period of a business cycle during which total production and total employment
are ddecreasing
Economic Growth - the ability of an economy to produce increasing quantities of goods and
services
Inflation Rate - the percentage increase in teh price level from one year to the next
Gross Domestic Product (GDP) - the market value of all final goods and services produced in a
country during a period of time, typically one year, measured using market values not
quantities, includes only current production
,Final good or service - a good or service purchased by a final user
Intermediate good or service - a good or service that is an input into another good or service,
such as a tire on a truck
factors of production - firms use: labor, capital, natural resources and entrepreneurship to
produce goods and services
Transfer payments - payments by the government to households for which the government
does not recieve a new good or service in return, includes social security, not included in GDP
Components of GDP - includes consumption, investment, government purchases, an net
exports: Y = C + I + G + NX
Consumption - spending by the households on goods and services, not including spending on
new houses
investment - spending by firms on new factories, office buildings, machinery, and additions to
inventories, plus spending by households and firms on new houses
Government Purchases - spending by the federal, state, and local government on goods and
services
Net Exports - exports minus imports
Value Added - the market balue a firm adds to a product, allows them to make the profit
Shortcomings of GDP as a measure of total production - household production (goods an
services people produce by themselvs) and the underground economy (buying and selling of
, goods and services that is concealed from the government to avoid taxes or regulations or
because it is illegal
Shortcomings of GDP as a measure of well being - the value of leisure is not included, not
adjusted for pollution or other negative effects of production, not adjusted for changes in crime
and other social problems, measure the size of the pie but not how it is divided up
Nominal GDP - the value of final goods and services evaluated at current-year prices
Real GDP - the value of final goods and services evaluated at base-year prices
Price Level - a measure of the average prices of goods and services in the economy, calculate %
change in price level by looking at change in GDP deflator
GDP deflator - a measure of the price level, calcuated by dividing nomial GDP by real GDP and
multiplying by 100
Gross National Product (GNP) - value of final goods and services produced by the residences of
the US, even if the production takes place outside of the US
National Income - subtract the value of worn out machinery, equiptment and buildings
(deprication/consumption of fixed capital) from GDP equals national income
Labor Force - the sum of te emplyed and unemployed workers in the economy
Unemployment rate - the percentage of labor force that is unemployed: # unemployed divided
by labor force, multiplied by 100
