Chapter 20 Flashcards
GDP
Sum of consumption (C), gross investment (I), government purchases (G) and net exports (NX).
GDP = C + I + G + NX
Goods and Earnings Flow
Measure of GDP.
Value Added
Difference between sales and purchases of intermediate goods and services of a firm.
How to avoid Double Counting
Only count final products when calculating GDP.
GDP Deflator
new price / old price
Real GDP
Real GDP = Nominal GDP / GDP Deflator
This removes price changes.
Consumption Expenditures
- Durable goods: cars.
- Nondurable goods: food.
- Services: medical care.
Investment and Capital
Investment: addition to the nation’s capital.
Capital: physical assets (buildings,…).
Government Purchases
Roads, military, schools, hospitals.
Net Exports
Difference between exports and imports.
Net Domestic Product (NDP)
GDP minus depreciation. This depreciation is subtracted from investments, giving net investments.
Why is GDP used instead of NDP?
Although NDP is a generally more accurate calculation, it is very difficult to calculate depreciation for the whole nation.
Gross National Product (GNP)
Total output produced by with labor or capital owned by the country’s citizens. This includes the output of citizens living overseas.
Measured saving is exactly equal to measured investment. (T or F)
True.
