Chapter 21 Flashcards
GDP stand for
Gross Domestic Product
GDP
the market value of all the final goods and services produced within a country in a given time period.
The Four Key Components when Measuring GDP
Value Produced, What Produced, Where Produced, When Produced
Value Produced
GDP is not concerned with the quantity of the items produced, but rather the market value of all items produced.
What Produced
GDP only includes final goods and not intermediate goods and services and those which are traded in the market.
Final goods and services
those that are produced for its final user and not as a component of another good or service.
Where Produced
Only goods and services that are produced within a country count as part of that country’s GDP.
When Produced
GDP measures the value of production during a given time period. This time period is either a quarter of a year—called the quarterly GDP data—or a year—called the annual GDP data.
The expenditure view of GDP is measured by what equation
Total Expenditure = C+I+G+NX
(expenditure approach) C =
Consumption expenditure
(expenditure approach) I =
Investment
(expenditure approach) G =
Government expenditure on goods and services
(expenditure approach) NX =
Net exports of goods and services
Consumption expenditure
The expenditure by households on consumption goods and services.
Investment
The purchase of new capital goods (tools, instruments, machines, and buildings) and additions to inventories.
Government expenditure on goods and services
The expenditure by all levels of government on goods and services.
Net exports of goods and services
The value of exports of goods and services minus the value of imports of goods and services.
Exports of goods and services
Items that firms in the United States produce and sell to the rest of the world.
Imports of goods and services
Items that households, firms, and governments in the United States buy from the rest of the world.
Used Goods
Expenditure on used goods is not part of GDP because these goods were part of GDP in the period in which they were produced and during which time they were new goods.
Financial Assets
When households buy financial assets such as bonds and stocks, they are making loans, not buying goods and services. The expenditure on newly produced capital goods is part of GDP, but the purchase of financial assets is not.
____ receive the incomes from the factors of production
Households
Labor earns ___, capital earns ___, land earns ___, and entrepreneurship earns ___.
Labor earns wages, capital earns interest, land earns rent, and entrepreneurship earns profits.
The income view of GDP is expressed by what equation
Income(Y)= C+S+NT
NT
Net Taxes
Net taxes
equals taxes paid minus cash benefits received and are the green flow from households to governments.
S
Saving
Saving
The amount of income that is not paid in net taxes or spent on consumption goods and services.
The value of production equals _____ equals expenditure.
The value of production equals income equals expenditure.
The expenditure approach measures GDP by
using data on consumption expenditure, investment, government expenditure on goods and services, and net exports.
To measure GDP using the income approach we examine
the incomes that firms pay households for the services of the factors of production they hire—wages for labor services, interest for the use of capital, rent for the use of land, and profits for entrepreneurship—and sums those incomes.
Incomes are divided into what two major categories
Wage Income and Interest, Rent and Profit Income
Wage Income and Interest
compensation of employees
Rent and Profit Income
net operating surplus
What two components make up net domestic product at factor cost?
Wage Income and Interest, Rent and Profit Income
Net domestic product at factor cost is not ___
GDP
What adjustments need to be made to get from Net domestic product to GDP?
One from factor cost to market prices and another from net product to gross product.
The expenditure approach
values goods and services at market prices
The income approach
values goods and services at factor cost
Factor cost
The cost of the factors of production used to produce them.
Indirect taxes
Sales taxes
Subsidies
Payments by government to firms
_____ make these two values differ.
Indirect taxes (such as sales taxes) and subsidies (payments by government to firms)
Sales taxes make ______ exceed factor cost, and subsidies make _____ exceed market prices.
Market prices; factor costs
To convert the value at factor cost to the value at market prices, we must _____
add indirect taxes and subtract subsidies.
The income approach measures __
net product
The expenditure approach measures __
gross product
The difference from indirect taxes and subsidies is _____
depreciation
Depreciation
The decrease in the value of capital that results from its use and from obsolescence.
The expenditure approach and income approach do not deliver exactly the same estimate of ___.
GDP
The sum of expenditures might exceed the sum of ____. This is the notion of the statistical discrepancy.
incomes
Statistical discrepancy.
The sum of expenditures exceeds the sum of incomes.
Gross National Product (GNP)
The market value of all the final goods and services produced anywhere in the world in a given time period by the factors of production supplied by the residents of the country.
Disposable personal income
The income received by households minus personal income taxes paid.
Real GDP
The value of the final goods and services produced in a given year expressed in terms of the prices in a base year.
Nominal GDP
The value of final goods and services produced in a given year expressed in terms of the prices of that same year.
The goal of calculating real GDP is to
Measure the extent to which total production has increased and remove from the nominal GDP numbers the influence of price changes.
We use estimates of real GDP for what three main purposes
:
To compare the standard of living over time, To track the course of the business cycle, To compare the standard of living among countries
A nation’s standard of living is measured by the
value of goods and services that its people enjoy, on average.
The metric most often used to determine standard of living is
real GDP per Capita (per person) which is determined by real GDP divided by population
Real GDP per Capita (per person) is determined by
real GDP divided by population
Potential GDP per person
The level of real GDP when all the economy’s factors of production are fully employed.
The economy’s factors of production
labor, capital, land, and entrepreneurial ability
Business cycle
A periodic but irregular up-and-down movement of total production and other measures of economic activity such as employment and income.
2 phases of the Business Cycle
Expansion and Recession
2 turning points of the phases of the business cycle
Peak and Trough
GDP measures
The value of goods and services that are bought in markets.
GDP measurements exclude
Household production, Underground production, Leisure time, Environment quality
