Chpater 4: Monitoring the Value of Production: GDP Flashcards
What is GDP?
The market value of all the final goods and services produced within a country in a given time period.
Define a final good.
An item that is bought by its final user during a specified time period.
Define an intermediate good.
An item that is produced by one firm, bought by another firm, and used as a component of a final good or service.
What are the components of the economy as per the circular flow model?
- Firms
- Households
- Governments
- Rest of world
What are the two types of aggregate economic markets?
- Goods markets (goods and services)
- Factors markets (productive resources)
What does ‘Y’ represent in economic terms?
Income
What does ‘C’ represent in economic terms?
Consumption expenditure
What does ‘I’ represent in economic terms?
Investment
What does ‘G’ represent in economic terms?
Government expenditure
What does ‘X’ and ‘M’ represent in economic terms?
- X = Exports
- M = Imports
What does ‘NX’ stand for?
Net exports = X - M
What does the circular flow diagram illustrate about households?
- Sell factor services to firms and receive incomes = Y
- Spend C on goods and services
What is the equation for total output in an economy?
Y = C + I + G + NX
What are the two ways Statistics Canada measures GDP?
- Expenditure approach
- Income approach
What is the expenditure approach equation for GDP?
Y = C + I + G + NX
What is included in the income approach to GDP?
- Wages, salaries, and supplementary labour income
- Other factor incomes
How is Net domestic income at market prices calculated?
Net domestic income at factor cost + Indirect taxes – Subsidies
What is the difference between nominal GDP and real GDP?
- Nominal GDP: Valued at current prices
- Real GDP: Valued at constant prices
What is potential GDP?
The maximum level of real GDP that can be produced while avoiding shortages.
What is a business cycle?
The periodic but irregular up-and-down movement in economic activity.
What are the two phases of a business cycle?
- Expansion
- Recession
What is a recession?
A period during which real GDP decreases for at least two successive quarters.
What is an expansion?
A period during which real GDP increases.
What is the Lucas wedge?
The accumulated loss of output that results from a slowdown in the growth rate of real GDP per person.
List some factors that influence the standard of living not included in GDP.
- Household production
- Underground economic activity
- Health and life expectancy
- Leisure time
- Environment quality
- Political freedom and social justice
What are the two special problems in international comparisons of economic welfare?
- Converting real GDP into the same currency units
- Using the same prices to value goods and services
How does purchasing power parity affect the comparison of U.S. and Chinese GDP?
U.S. real GDP per person is only 3.8 times that of China when adjusted for purchasing power.
