Chapter 6A | GDP, Economic Growth, Business Cycles Flashcards
Nominal GDP
value at current prices of all final products and services produced annually in a country
GDP
concepts measure the value of all final products and services produced annually in a country; nominal GDP combines changes in prices and quantities, real GDP measures only changes in quantities, and real GDP per person is the best measure of material standard of living.
Differences in nominal GDP
between years due to price changes or quantity changes
GDP includes
products and services produced within a country’s borders, no matter what the nationality of the business doing the producing
GDP is a flow amount per unit of time
Stock
fixed amount at a moment in time
Real GDP
value at constant prices of all final products and services produced annually in a country
Differences in real GDP
between years show only changes in quantities
Real GDP per person
real GDP divided by population
Real GDP per person is the best measure of material standard of living
Value Added & Enlarged Circular Flow
aggregate spending equals aggregate income in circular flow diagrams
Final product or service
consumed directly by consumers
Intermediate product or service
input bought from other businesses
Value added
value of output minus the value of intermediate products and services bought from other businesses
Value added solves the problems of double counting and of distinguishing between final and intermediate products and services
Value of final products and services = value added
Value of final products and services (GDP) = input’s income
Value of final products and services = value added
Value of final products and services (GDP) = input’s income
GDP can be calculated using either half of the circular flow
Aggregate spending (GDP) = aggregate income (Y)
Spending on final products and services = payments to input owners
Value of final products and services = value added
Value of final products and services (GDP) = input’s income
GDP can be calculated using either half of the circular flow
Aggregate spending (GDP) = aggregate income (Y)
Spending on final products and services = payments to input owners
Flows of spending on the enlarged circular flow
C - consumption spending by consumers
I - business investment spending on factories and machines made by businesses
G - government spending on products and services
X - spending by the rest of the world on Canadian exports of products and services
IM - Canadian spending on imports of products and services produced by the rest of the world
preferences
your wants and their intensities
demand
consumers’ willingness and ability to pay for a product or service
marginal benefit
the additional benefit from a choice, changing with circumstance
quantity demanded
amount you actually plan to buy at a given price
market demand
sum of demands of all individuals willing and able to buy a particular product or service
law of demand
if the price of a product or service rises, quantity demanded decreases, other things remaining the same
demand curve
shows the relationship between price and quantity demanded, other things remaining the same
Five Ways to Change Demand and Shift the Demand Curve
Preferences
Prices of related products
Income
Expected future prices
Number of consumers
A change in any of these five factors shifts the demand curve.
decrease in demand
decrease in consumers’ willingness and ability to pay
substitutes
products or services used in place of each other to satisfy the same want
complements
products or services used together to satisfy the same want
normal goods
products or services you buy more of when your income increases
inferior goods
products or services you buy less of when your income increases
Demand changes with changes in preferences, prices of related goods, income, expected future price, and number of consumers. For example, demand increases with:
– increase in preferences.
– rise in price of a substitute — products or services used in place of each other to satisfy the same want.
– fall in price of a complement — products or services used together to satisfy the same want.
– increase in income for normal goods — products or services you buy more of when your income increases.
– decrease in income for inferior goods — products or services you buy less of when your income increases.
– rise in expected future prices.
– increase in number of consumers.
