Chapter 6- GDP

Question 1

Definitions of GDP

Answer 1

GDP- market value of all goods and services produced in a country in 1 year
GDP per capita- GDP divided by population
real GDP per capita- standard of living
market value- price of good when sold, found by multiplying the quantity
all goods and services- intermediate goods(goods used to produce other goods), final goods(goods that are sold), machinery is counted for GDP, while intermediate goods aren’t
produced- must be produced in country OR GNP(gross national product, is production done by a country’s permanent resident anywhere in 1 year), doesn’t included reselling of items or financial assets

Question 2

Growth Rates

Answer 2

growth rate- how rapidly the economy is rising or falling over time
formula: GDP of recent year - GDP of other divided by GDP of other times 100

Question 3

Nominal vs Real GDP

Answer 3

nominal- have not been adjusted for GDP, doesn’t take into account inflation and general rise of prices
real- takes adjustments for inflation and prices, calculated by finding GDP for one year, than for older year multiplying prices of older year by quantity of that year, must be used to compare GDP from other years

Question 4

Changes in GDP

Answer 4

recession- significant and widespread decline in employment and real GDP, occurs in all sectors of economy
business fluctuations- short run movements in real GDP around its long term trend
end of recession can be difficult to determine- takes months to retrieve data, can be revised, debate over when it started

Question 5

Problems with GDP

Answer 5

doesn’t count illegal or underground market, doesn’t count non priced production(chores that provide a service but result in no exchange of money), doesn’t count leisure, doesn’t count environmental costs(pollution, deforestation), doesn’t measure distribution of income

Question 6

National Spending Approach

Answer 6

another way of examining GDP
formula is Y=C(consumption) + I(investment) + G(gov purchases) + NX(net exports)
good for analysis of short run economics
consumption- private spending on final goods and services, spending from gov on healthcare/SS,
investment- private spending on tools, plant, and equipment to produce future output, STOCKS NOT COUNTED
government purchases- spending by all levels of government on final goods and services(transfers not included), counts military purchases/wages/supplies
net exports- exports minus imports

Question 7

Factor Income

Answer 7

every dollar spent by someone is a dollar gained by someone else

Question 8

Why 2 Approaches

Answer 8

shines different light on economy