Ch. 7- Measuring GDP

Question 1

GDP (Gross Domestic Product)

Answer 1

The sum of the market value of all final goods and services produced in a country within a given time. Calculated in a country’s domestic currency.

Question 2

How many times per year is GDP calculated?

Answer 2

Quarterly (4 times a year)

Question 3

Why are only FINAL goods and services counted in GDP?

Answer 3

To avoid double-counting, ignore INTERMEDIATE goods (goods used to produce something else)

Question 4

GNP (Gross National Product)

Answer 4

The sum of the market value of final goods produced by the permanent residents of a country, no matter where in the world production occurs.

Question 5

Expenditure Approach to Calculating GDP

Answer 5

If all the money spent on buying final goods was added up, we will get the market value of all outputs sold. So, total output = total expenditure.

Question 6

What are the 4 components of expenditure?

Answer 6

Consumption (C)
Investment (I)
Government Spending (G)
Net Exports (NX): net exports - net imports

Question 7

Income Approach to Calculating GDP

Answer 7

If all income received from selling goods was added, we could use it to measure production

Question 8

What are the 4 components of the income approach

Answer 8

Wages
Interest
Rental Income
Profits

Income = Wages + Interest + Rental Income + Profits

Question 9

Value-Added Approach to Calculating GDP

Answer 9

Examine all transactions but only count the value they add to the economy.

Question 10

Real GDP (rGDP)

Answer 10

Focuses solely on output (quantity of goods and services produced). Based off constant (base) prices. Real GDP rises when quantity increases but NOT when prices increase.

Question 11

Nominal GDP

Answer 11

Measure of goods and services valued at current prices (no control for price changes). Increases when price and/or quantity increase.

Question 12

GDP Deflator

Answer 12

A way of summarizing how prices have changed across the entire economy.

GDP Deflator = (Nominal GDP/Real GDP)*100

Question 13

GDP per capita

Answer 13

Measures how much is produced per person in a country and average income

Question 14

What are the limitations of GDP measures?

Answer 14

Home Production
Underground Economy (Black Market/Grey Market)
Environmental externalities
Negative externalities of economic activities

Question 15

What metrics can be used to give a “fuller picture” of a country’s well-being

Answer 15

Child Mortality Rate
Literacy Rate
Life Expectancy
Life Satisfaction Index