ECON 1000 - Chapter 7
Review session
ECON 1000 Chapter
7 latest update
gross domestic product the total market value of all final goods and services produced
within a society over a certain period of time
intermediate good a good used in the production process that is not a final good or service
consumption expenditures purchases of newly produced goods and services by households
(denoted by C)
private investment expenditures purchases of newly produced goods and services by firms
(e.g., spending on new plants and equipment) (denoted by I)
government purchasespurchases of newly produced goods and services by local, state, or federal
government (denoted by G)
import a good or service produced in a foreign country and purchased by someone in the home
country
export a good or service produced in the home country and sold in a foreign country
net export exports minus imports (denoted by NX)
trade deficit the excess of imports over exports
trade surplus the excess of exports over imports
Calculating GDP by equation Y = C + I + G + NX
, real GDP the value of GDP computed using prices from an arbitrary base year (i.e., a
measure of GDP that controls for changes in prices, since across different periods goods/services
are valued at common, constant prices)
nominal GDP the value of GDP computed using current period prices
real GDP per capita value of real GDP divided by total population of the country
Industrially Advanced Countries (IAC's) high income countries with primarily market based
economies, large stocks of technologically advanced industrial capital, and a highly educated and
skilled workforce (e.g., U.S., Norway, Australia, Germany, Japan)
Less Developed Countries (LDC's) lower income countries which are held back by some
combination of poor economic institutions, undeveloped industrial capital, and/or an uneducated
and unskilled workforce (e.g., India, Ghana, Bangladesh, and the Democratic Republic of the
Congo)
economic development improvements over time in a society's quality of life and living
standards: by definition, very qualitative in nature; includes, but not limited to, increased
consumption of material goods/services
economic growth sustained increases over time in a society's value of Real GDP: graphically
illustrated by an outward shift of the PPF; measured quantitatively as the percentage increase in
Real GDP
GDP growth rate annual percentage change in the value of real GDP
catch-up effectconjecture that (all other factors fixed) the growth rates of less developed
countries will exceed the growth rates of developed countries, allowing the less developed
countries to "catch up" over time
Rule of 72 the observations that a variable that grows at a constant rate of "X% per period"
will double in value in approximately "(72/X) periods"
physical capital machines, building, factories, and other equipment used in the production
process
human capital the knowledge, education, skills, experience, work ethic, interpersonal skills, and
other attributes of workers which determine productivity
technology the application of scientific and engineering principles to the problem of
production
Four broad sources of economic growth (i.e., changes that would lead to an "outward movement
of PPC over time")... 1. Increases in the quantity of labor (i.e., more workers); 2. Increases in
the quantity of physical capital (e.g., more factories, trucks, computers, electricity plants); 3.
Review session
ECON 1000 Chapter
7 latest update
gross domestic product the total market value of all final goods and services produced
within a society over a certain period of time
intermediate good a good used in the production process that is not a final good or service
consumption expenditures purchases of newly produced goods and services by households
(denoted by C)
private investment expenditures purchases of newly produced goods and services by firms
(e.g., spending on new plants and equipment) (denoted by I)
government purchasespurchases of newly produced goods and services by local, state, or federal
government (denoted by G)
import a good or service produced in a foreign country and purchased by someone in the home
country
export a good or service produced in the home country and sold in a foreign country
net export exports minus imports (denoted by NX)
trade deficit the excess of imports over exports
trade surplus the excess of exports over imports
Calculating GDP by equation Y = C + I + G + NX
, real GDP the value of GDP computed using prices from an arbitrary base year (i.e., a
measure of GDP that controls for changes in prices, since across different periods goods/services
are valued at common, constant prices)
nominal GDP the value of GDP computed using current period prices
real GDP per capita value of real GDP divided by total population of the country
Industrially Advanced Countries (IAC's) high income countries with primarily market based
economies, large stocks of technologically advanced industrial capital, and a highly educated and
skilled workforce (e.g., U.S., Norway, Australia, Germany, Japan)
Less Developed Countries (LDC's) lower income countries which are held back by some
combination of poor economic institutions, undeveloped industrial capital, and/or an uneducated
and unskilled workforce (e.g., India, Ghana, Bangladesh, and the Democratic Republic of the
Congo)
economic development improvements over time in a society's quality of life and living
standards: by definition, very qualitative in nature; includes, but not limited to, increased
consumption of material goods/services
economic growth sustained increases over time in a society's value of Real GDP: graphically
illustrated by an outward shift of the PPF; measured quantitatively as the percentage increase in
Real GDP
GDP growth rate annual percentage change in the value of real GDP
catch-up effectconjecture that (all other factors fixed) the growth rates of less developed
countries will exceed the growth rates of developed countries, allowing the less developed
countries to "catch up" over time
Rule of 72 the observations that a variable that grows at a constant rate of "X% per period"
will double in value in approximately "(72/X) periods"
physical capital machines, building, factories, and other equipment used in the production
process
human capital the knowledge, education, skills, experience, work ethic, interpersonal skills, and
other attributes of workers which determine productivity
technology the application of scientific and engineering principles to the problem of
production
Four broad sources of economic growth (i.e., changes that would lead to an "outward movement
of PPC over time")... 1. Increases in the quantity of labor (i.e., more workers); 2. Increases in
the quantity of physical capital (e.g., more factories, trucks, computers, electricity plants); 3.
