econ gdp Flashcards
what is gdp
gross domestic product (tracks exchanges of money, overall health of economy)
3 gdp rules
final manufactured good, made within the country you are looking at, made in the current fiscal year
gdp cannot account for
non market activities, externalities, quality of life
expenditure approach
breaks economy into 4 groups to calculate gdp
4 expenditure groups
consumer goods, business goods and services, government goods and services, net exports
income approach
adding up all the incomes in the economy
nominal gdp
gdp calculated with current prices, not accurate because it does not account for inflation
real gdp
gdp calculated with a base year, more accurate because it covers inflation
aggregate demand
all the goods and services that buyers are willing and able to purchase at different price levels
if the price level increases (inflation)
the real gdp demanded falls
if the price level decreases (deflation)
the real gdp demanded increases
wealth effect
higher prices reduce purchasing power of money
interest rate effect
as price level increases, lenders need to charge higher interest rates to get a real return on their loans
higher interest rates
discourage consumer spending and business investment
foreign trade effect
when us price level rises, foreign buyers purchase fewer us goods and americans buy more foreign goods
foreign trade effect causes
exports to fall and imports to rise, real gdp demanded falls
4 groups in aggregate demand
consumers, business, government, rest of the world
shifts in aggregate demand
consumer spending, investment spending, government spending, net exports
AD shift right, Consumer spending
up
AD shift right, Interest rate
down
AD shift right, G fiscal policy (expansionary)
gov spending up, taxes down
AD shift right, exports
more exports
short run aggregate supply
wages and resource prices will not increase as price levels increase
long run aggregate supply
wages and resource prices will increase as price levels increase
