Chapter 2: GDP Flashcards
GDP definition
Value of all currently produced goods and services sold on the market during a particular time interval
We can measure GDP in:
- Months
- Quarters
- Years
Types of GDP
- Real GDP
- Nominal GDP
What’s Real GDP
Value of final goods and services produced valued at the prices of base year
What’s nominal GDP
Value of final goods and services produced valued at the prices of that same year
Short run vs Long run
- Short run: 1-5 years (stability)
- Long run: 1-more decades (growth)
What are economic fluctuations
Ups and downs of an economy, part of the business cycle
Recession definition
A period of negative economic growth for two consecutive quarters
Effects of recessions
- Fall in national Output and income
- Higher unemployment
- Higher government borrowing
From Natural Real GDP to inflation
- Natural Real GDP is the optimum level
- Real GDP breaches optimum level
- Producer needs more workforce and materials, but only limited supply available
- Costs go up, therefore inflation
What’s the GDP formula?
Y=C+I+G+(X-M)
What’s a closed economy?
No trade of goods, services or financial assets with other nations
What’s an open economy?
Exports and imports goods and services to and from other nations
C in GDP formula
Consumption, largest part of the GDP
I in GDP formula
Investment, firms do it in order to produce and sell
