Chapter 4--Economic Performance Metrics Flashcards
What is Gross Domestic Product?
The non-depreciated final goods and services of all companies operating and selling in a nation.
What are the differences between real GDP and nominal GDP, and which is preferred?
Read GDP is the GDP adjusted for inflation. Nominal GDP is the GDP per year, unadjusted. Obviously, Real GDP is preferred, because it gives a more accurate picture of the change in product per year.
What are final goods and services?
Those goods and services that are sold to end-users. Those sold as production supplies are intermediate goods and services.
What are a country’s business cycles?
The ups and downs of the real GDP over time
What is an economic contraction?
The negative movement from peak to trough on the real GDP graph, due to a reduction in real GDP
When does an economic contraction become classified as a recession?
When the contraction moves below the trend line for two quarters in a row
What is an economic expansion (recovery)?
The positive movement from trough to peak on the real GDP graph, due to an increase in real GDP
How is GDP calculated?
The aggregate quantity of all goods and services produced multiplied by their respective prices
How is real GDP calculated?
The aggregate quantity of all goods and services produced in a given year multiplied by the prices of those goods and services in the reference year
What are the four components of nominal GDP as measured by aggregate expenditures?
1) Consumption spending (C)
2) Investment spending (I)
3) Government spending (G)
4) Net exports (NX)
What is consumption spending?
All the final goods and services that are ultimately bought and used by households, except for newly constructed buildings
What is investment spending?
All the final goods and services that become part of the business and residential capital stock, including newly constructed buildings
What is government spending?
All the final goods and services purchased by the government (not Transfer payments)
What are net exports?
The difference between exports and imports
What is the circular flow diagram?
A model that is based on the fact that aggregate expenditures and aggregate income both equal GDP. Thus, households purchase products and thus flow their cash expenditures to businesses, who flow that cash to employees and shareholders as wages and dividends
