7. Measuring macroeconomic data Flashcards
What is the “Gross Domestic Product”?
GDP is the current market value of all final goods and services newly produced in the economy during a fixed period of time
What is “National income accounting”?
is an accounting system that measures economic activity and its components
Why are not all goods and services counted in GDP?
Because they are:
- Nonmarket goods and services, which do not have a market price (e.g., household services produced within a family),
or
- Produced in the underground economy
What is an “imputed” value?
The value of something based on a calculation that you make when you do not have exact information, and have to use information about similar things or situations instead.
Why are only newly produced g/s included in the GDP?
- GDP includes only goods and services that are newly produced in the current period. Old items have already been accounted for in the PAST.
eg. If you buy a 3-year-old car from a car dealership:
- The cost of the used car is not included in GDP
- The value of the services provided by the car dealership is included in GDP
What is the “value-added”?
Value added is the value of a firm’s output minus the cost of the intermediate goods purchased by the firm
What is the “Value-added” technique used to measure GDP?
By adding up the value added from each firm, we get the final value of the goods and services produced
What is a “capital good”?
A capital good (e.g., a robot) is used in the production of other goods that is not used up in the stages of production
Why are “capital goods” classified as “final goods”?
New capital goods are classified as final goods because they are not included in spending on other final goods and yet their production is part of economic activity
What is “inventory investment”?
the change in inventories (firms’ holdings of raw materials, unfinished goods and unsold finished goods) over a given period of time
What is the difference between a “stock” and “GDP”?
- GDP is a flow, which is an amount per a given unit of time
- By contrast, a stock is a quantity at a given point in time (an accumulation of flows over time)
What is the equation of the “Expenditure” approach?
Y = C + I + G + (X - M)
where…
Y = GDP = total production (output)
C = consumption expenditure
I = investment
G = govt. purchases of goods & services
NX = net exports = exports – imports
What is “consumption expenditure”?
Total spending for currently produced consumer goods and services
What is “investment”?
Spending on currently produced capital goods that are used to produce goods and services over an extended period of time
What is a non-durable good?
Spending by the government on currently produced goods and services
Government purchases were 19.2% of GDP in 2012
Government consumption includes government purchases for short-lived goods and services like health care and police
Government investment includes spending for capital goods like buildings and computers represents
Pure government transfers (e.g., Social Security and Medicare) are excluded from G
What is a “nondurable” good?
Can’t be stored
What is “net-exports”?
Net exports (or trade balance) are exports minus imports
Why subtract imports from GDP?
Spending on imports is included in consumption expenditure, investment, and government purchases, but is not produced in this country
Definition of “national income”?
Compensation of employees + other income + corporate profits
Definition of “gross national product”? (GNP)
National income + depreciation - total income earned by U.S. residents
How can we calculate GDP using GNP and net factor income?
Gross domestic product (GDP) = GNP + net factor income -
domestically produced measure of gross product
What is the difference between “nominal” and “real” GDP?
A nominal variable is a measure at current market (nominal) prices (e.g., nominal GDP)
A real variable is a measure in terms of quantities of actual goods and services (e.g., real GDP)
–> ACCOUNTS FOR INFLATION
How do we measure “Real GDP”?
Real GDP = Nominal GDP / GDP deflator
How do we get the “GDP deflator”?
= 100 x (Nominal GDP in year Y / Real GDP in year Y)
What is the “Consumer Price Index”?
A measure of the average prices of consumer goods and services, i.e., a cost of living index
(Calculated monthly by the Bureau of Labor Statistics using a basket of thousands of consumer goods and services)
What is the % change in nominal GDP equal to?
% change in nominal GDP = % change in the price level + % change in Real GDP
What is the “inflation rate”?
The inflation rate is the % rate of change of the price level over a particular period:
What is the equation to measure “inflation rate”?
(change in period price level) / Last period’s price level
What is the definition of “unemployment rate”?
The unemployment rate is the percentage of people in the civilian population who want to work but who do not have jobs
How is the “unemployment rate” measured?
Number of unemployed / Labor force
How is the “labor force” measured?
Number of employed + number of unemployed
What are “interest rates”?
An interest rate is the cost of borrowing, or the price paid for the rental of funds.
Interest rates are returns for holding debt securities, such as bonds.
What is the difference between “nominal” and “real” interest rate?
- A nominal interest rate makes no allowance for inflation
- The real interest rate is the amount of extra purchasing power a lender must be paid for the rental of his/her money
What is the “Fisher equation”? (interest rates)
nominal interest rate = real interest rate + expected inflation
What are “credit” markets?
Credit markets are where households and businesses get funds (credit) from each other
