Chapter 6: GDP

Question 1

Gross Domestic Product (GDP)

Answer 1

The total market value of all final goods and services produced in a given period of time by factors of production located in a country

Question 2

Gross Domestic Product (GDP) notes (6)

Answer 2

1) Measure of production not sales
2) Excludes intermediate goods (goods produced by one firm for use in further processing by another firm) Ex: Tires for cars, parts to iPhones
3) Measures new goods/services, excludes used (2nd hand) goods
4) Flow measure: Measures amount in a given period of time
5) Factors of production = Land, labor, capital
6) By factors of production WITHIN a country

Question 3

Gross National Product (GNP)

Answer 3

The total market value of all final goods and services produced in a given period of time by factors of production owned by the citizens of a country

Question 4

Expenditure Approach

Answer 4

Calculates how money is spent (total $ spent)
Y = C + I + G + (X-M)
Y = GDP
C = Personal consumption expenditures
I = Private investment
G = Government consumption
X - M = Exports minus imports = Net exports

Question 5

Income Approach

Answer 5

Calculates how money is earned (total income)
Y = profits + rents + wages
Y = Income

Question 6

3 types of consumption expenditures (consumer spending)

Answer 6

1. Durable goods: Goods that last a relatively long time Ex: Cars, household appliances
2. Nondurable goods: Goods that are used up fairly quickly
   Ex: Food, clothing
3. Services: The things we buy that don’t involve the production of physical things
   Ex: Medical services, education

Question 7

Investment

Answer 7

Purchase of new capital done by the private sector

Question 8

Depreciation

Answer 8

Amount by which an asset’s value falls in a given period (usually capital)

Question 9

Nominal GDP

Answer 9

• Both quantity and price vary

- Measures GDP using real/current dollars

Question 10

Real GDP

Answer 10

• Only quantity varies
• By keeping price constant, you take out the effect of inflation to see the variation in quantities
• Uses base year prices

Question 11

National Beureu of Economic Analysis (NBEA)

Answer 11

• Calculates GDP
• Seasonally adjusts (adjusts to seasons such as Christmas)
• Calculated every 3 months (4 quarters a year)

Question 12

The single largest expenditure component of GDP is

Answer 12

Consumption 70%

Question 13

The first person who calculated Gross National Product (GNP) of the United States in the 1930s, was

Answer 13

Simon Kuznets