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Econ 202 Macroeconomics > Chapter 6: GDP > Flashcards

Chapter 6: GDP Flashcards

1
Q

What are the goals of macroeconomic policy? (3)

A
  1. Economic Growth
  2. Low Unemployment
  3. Low Inflation
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2
Q

How do economists typically measure the size of a nation’s overall economy?

A

GDP / Gross Domestic Product

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3
Q

GDP \ Gross Domestic Product

A

Value of all final goods and services produced in a country in a given year

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4
Q

What type of goods and services are excluded from GDP?

A
  1. Intermediate
  2. Illegal
  3. Used
  4. Income transfer payments (like Social Security, unemployment)
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5
Q

What country has the largest GDP in the world? What was its 2016 GDP?

A

United states

$18.6 trillion

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6
Q

Who measures GDP?

A

Government economists at the Bureau of Economic Analysis, within the US Department of Commerce

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7
Q

How often is a business census conducted in the US?

A

Once every five years

In the 2nd and 7th year of each decade

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8
Q

Trade Balance

A

Gap between imports and exports

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9
Q

Trade Surplus

A

Nation’s exports are greater than its imports

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10
Q

Trade Deficit

A

Nation’s imports are greater than its exports

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11
Q

Physical Components of GDP (5)

A
  1. Durable goods
  2. Nondurable goods
  3. Services (largest category)
  4. Structures
  5. Inventories (change in)
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12
Q

5 Components of GDP

A
  1. Consumption (consumer spending)
  2. Investment (business spending)
  3. Government spending
  4. Imports
  5. Exports
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13
Q

Demand Components of GDP (5)

A
  1. Consumption (consumer spending)
  2. Investment (business spending)
  3. Government spending
  4. Imports
  5. Exports
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14
Q

Investment

GDP definition

A

Business spending. Purchase of new capital goods and equipment, real estate, and inventories

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15
Q

Investment Expenditure

A

Purchases of physical plant and equipment by businesses

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16
Q

How much of the GDP does investment typically make up?

Why is it important

A

15-18%

This is typically where jobs are created

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17
Q

How much of the GDP does government spending typically make up?

A

20%

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18
Q

Are government transfer payments, such as unemployment benefits and SS payments to seniors, included in GDP?

A

No. The government does not receive a good or services in exchange. These are income transfers.

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19
Q

GDP equation

A

GDP = Consumption + Investment + Government + (Exports - Imports)

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20
Q

Consumption

A

Consumer spending

21
Q

Double-Counting

A

Counting output more than once as it travels through production stages

22
Q

Intermediate Goods

A

Goods that go into the production of other goods

excluded from GDP calculations

23
Q

Depreciation

A

Capital ages and loses its value

24
Q

GNP / Gross National Product

A

GDP + production by domestic businesses abroad - production by foreign businesses within nation’s borders

25
Q

Difference between GDP and GNP

A

GDP: Production within a nation’s borders
GNP: Production by a nation’s citizens and firms, regardless of borders

26
Q

NNP / Net National Product

A

GNP - Depreciation

27
Q

Net Operating Surplus

A

Interest, rent, and profit income

28
Q

Interest

A

(income on loans) - (interest paid on borrowing)

29
Q

Two Categories of Household Income

A
  1. Wage income

2. Interest, rent, and profit income

30
Q

Nominal GDP

A

GDP expressed in prices of that same year

not adjusted for inflation

31
Q

Real GDP

A

GDP expressed in prices of the base year

adjusted for inflation

32
Q

What is the goal of calculating Real GDP?

A

Measuring the extent of production increase, by removing the influence of price changes between years

33
Q

In the “base year” for calculation purposes, what is the relationship between Nominal GDP and Real GDP?

A

Nominal GDP = Real GDP

34
Q

Real GDP Growth Rate% Equation

A

[(real GDP in Y1 - real GDP in Y0) x 100] / Y0 real GDP = % Change

35
Q

Factor Cost

A

Market price + Gov’t Subsidies - indirect taxes (i.e. sales)

36
Q

Calculation of a country’s total production that is ultimately sold in others countries

A

Exports divided by GDP

37
Q

Recession

A

Significant decline in real GDP

38
Q

Depression

A

Lengthy and deep recession

39
Q

Peak

A

Highest point of the economy, before the recession begins

40
Q

Trough

A

Lowest point of a recession, before recovery begins

41
Q

Graph of economy: Peak to Trough

A

Recession / downturn

42
Q

Graph of economy: Trough to Peak

A

Economic upswing

43
Q

PPP / Purchasing Power Parity

A

Exchange rate that provides a longer-run measure than day-to-day. Used for cross country comparisons of GDP

44
Q

Market Exchange Rate

A

Exchange rate that varies on a day-to-day basis

45
Q

What type of exchange rate is typically used to compare GDP between countries?

A

PPP / Purchasing Power Parity exchange rate

46
Q

GDP Per Capita

A

GPD / Population

* check that units are the same (million, trillion, etc)

47
Q

Does GDP per capita tell us about income inequality in society?

A

No, because it is only an average.

48
Q

What does GDP not tell us about a society?

A
  1. Income inequality
  2. Variety of choice
  3. Availability of technology
  4. Leisure time
  5. Environmental quality
  6. Health and education
49
Q

What is a better measure of a nation’s wealth - GDP or GDP per capita?

A

GDP per capita

Takes population size into account

Econ 202 Macroeconomics (15 decks)

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