Chapter 7: Measuring Output Flashcards
Nominal gross domestic product (GDP)
the current dollar value of production.
intermediate goods
goods used to build or make another product that will be later sold
final goods and services
goods sold to the end user and not used to produce another product
consumption (C)
all expenditures made by households on goods and services, like clothing, food, electronics, and recreation during a given time period; sum of durables goods, nondurable goods, and services
gross investment (I) (or investment)
dollar value of all new capital purchased and the expansion of inventories in an economy during a given time period
3 gross investment categories
business fixed investment, residential investment, inventory investment
government purchases (G)
all final goods purchased by federal, state, and local governments (tanks, police cars, fire engines, labor such as police officers, teachers, etc.) during a given time period
imports (M)
goods, services, resources produced abroad and sold domestically
exports (X)
goods, services, resources produced domestically and sold abroad
net exports (NX)
NX = X (exports) - M (imports)
Questions to determine if included GDP
- Does the transaction represent new production of a final good or service?
- Who is purchasing the good or service?
- Where was the good or service produced originally?
consumer durables
Goods that have an average useful life of three years or more
consumer nondurables
Goods that have an average useful life of less than three years
services
outputs, often intangible, of the direct activities of another person
transfer payment
payment made by the government that does not require an exchange of economic activity in return (payments to households)
business fixed investment
purchased by firms of new capital goods such as offices, factories, tools, machinery
residential investment
purchases of new homes inc. home improvements
inventory investment
inventory changes from year to year; positive if inventory growing; negative if declining)
depreciation
consumption of physical capital or value of capital that wears out, used up, obsolete during a year
net investment
Gross investment minus depreciation
GDP expenditures approach
approach to calculating nominal GDP that sums 4 categories of expenditures on final goods and services in an economy in a given time period
national income
total payments to owners of resources plus profits and losses
rent
payments made to land resources
wages
payments made to labor resources
interest
a fee for the use of money over time; payments made to lender
profits and losses
payments accruing to owners of entrepreneurial ability
proprietor’s income
profits and losses earned by individual proprietors
corporate profits
profits and losses of corporations
indirect business taxes
taxes paid by businesses (i.e.. property taxes, sales taxes, license fees)
net foreign factor income
difference between payments received from resources owned internationally and income earned by people in foreign countries from resources owned domestically
GDP income approach
GDP = National Income + Indirect business taxes + depreciation + net foreign factor income
real gross domestic product (real GDP, Y)
constant dollar value of all final goods and services produced in an economy during a given period of time (AKA inflation-adjusted GDP)
Difference between Nominal GPD and real GDP
prices used; nominal uses current prices and real uses prices from a base year (constant prices)
real GDP per capita
real GDP / population
inflation
a general increase in prices of goods and services
GDP price index
a price index based on all the goods and services that are counted as part of gross domestic product (AKA GDP deflator); way to measure the average price level in an economy;
Why GDP best measure of economic activity for a country?
- G/S not bought in a formal market aren’t included
- G/S in underground economy not included
- cannot account for the ultimate intangible: happiness
nominal GDP formula
Nominal GPD = C (consumption) +I (gross investment)+G (government purchases) +NX (net exports)
what year are real GPD and nominal GPD the same?
Base year
GPD price index formula
Nominal GDP/Real GDP x 100
home production
goods and services produced by a household and are not exchanged in a market
underground economy
economic activity where goods and services exchanged or payment but not counted as part of GDP (i.e. black markets)
national income formula
National Income = rent + wages + interest +
profits and losses
