Chapter 6 - Measuring Production, Spending and Income of Nations Flashcards
GDP
the market value of all new products produced in a territory at a given time
Final good
Goods that undergo no additional processing
Intermediate good
Goods that are a part of final goods. (Are not included in GDP)
(3) ways to measure GDP
1- Expenditure approach: total spending is divided into four components: consumption, investment, government spending and net exports and added together)
2- Income approach:
3- Production approach
Consumption
purchases of final goods and services by individuals
Investment
purchases of final goods and services by businesses
Government spending
purchases of new goods and services by federal, state and local government
Net exports
the value of exports minus imports, (also known as the trade balance)
Labor income
the sum of wages, salaries and fringe benefits paid to workers
Capital income
the sum of profits, rental payments, and interest payments
Depreciation
the decrease in an asset’s value over time
Net investment
the difference between investment, (the purchases of new goods and services), and depreciation.
Value added
the value of a firm’s production minus the value of the intermediate goods used in production
(4) categories of spending
1- consumption
2- investment
3- government spending
4- Net exports
Total amount of saving
a measure of the amount of resources a country has available for investment
National saving
aggregate income minus government purchases
Ex: S = Y - C - G
Real GDP
a measure of the value of all newly produced goods and services during some period of time adjusted for changes in prices over time
Nominal GDP
a measure of GDP without correcting for inflation
GDP deflator
nominal GDP divided by real GDP; it measures the level of prices of goods and services in real GDP relative to a given base year.
price level
the average level of prices in the economy.
Consumer price index (CPI)
a price index equivalent that calculates current price of a fixed market basket of consumer goods and service relative to a given year.
(3) main types of limitations of nominal GDP
1- revisions in GDP can change the assessment of the economy
2- some types of production are omitted from GDP
3- the production of goods and services is only part of what affects the quality of life
The ________ approach of calculating GDP requires adding up all expenditures on consumption, investment, government spending and net exports
spending/expenditure
In the __________ approach, GDP is calculated by adding labor income, capital income, depreciation and taxes.
income
_________ is used to calculate GDP under the production approach
Value added
____________ or the ratio of nominal GDP to real GDP is a measure of a price level in the economy
GDP deflator
The change in the _______________ is a measure of inflation in the economy
consumer price index
