GDP

Question 1

Microeconomics

Answer 1

Study of how households and firms

• Make decisions
• Interact in markets

Question 2

Macroeconomics

Answer 2

Study of economy-wide phenomena

- Including inflation, unemployment and economic growth

Question 3

What does GDP measures?

Answer 3

• Total Income of everyone in the economy

- Total expenditure on the economy’s output of goods and services

Question 4

For any economy as a whole…

Answer 4

Income must equal expenditure

Question 5

Circular flow diagram-assumptions

Answer 5

• All goods and services–bought by households

- Households–spend all of their income

Question 6

GDP

Answer 6

• Market value of all final goods and services
• Produced within a country
• In a given period of time

Question 7

GDP is the market value

Answer 7

• Market prices - reflect the value of the goods

Question 8

GDP measurement of all items produced in the economy

Answer 8

And sold legally in markets

Question 9

GDP excludes most items

Answer 9

• Produced and sold illicitly

- Produced and consumed at home

Question 10

Final

Answer 10

Value of intermediate goods is already included in the prices of the final goods

Question 11

Goods and services

Answer 11

Tangible goods & intangible services

Question 12

Produced

Answer 12

Goods and services currently produced

Question 13

Within a country

Answer 13

Goods and services produced domestically,

regardless of the nationality of the producer

Question 14

In a given period of time

Answer 14

A year or a quarte

Question 15

Components of GDP

Answer 15

Y = C + I + G + NX
Y = GDP
C = consumption 
I = investment
G = government purchases NX = net export

Question 16

Consumption

Answer 16

Spending by households

On goods and services Exception: purchases of new housing

Question 17

Investment

Answer 17

-Spending on capital equipment, inventories, 
and structures 
-Including household purchases of new 
housing
-Inventory accumulation

Question 18

Government Purchases

Answer 18

-Government consumption expenditure and 
gross investment 
-Spending on goods and services 
-By local, state, and federal governments 
-Does not include transfer payment

Question 19

Net exports =

Answer 19

Exports - Imports
Exports
- Spending on domestically produced goods by foreigners
Imports
- Spending on foreign goods by domestic residents

Question 20

Total spending rises from one year to the next

Answer 20

• Economy - producing a larger output of goods
  and services
• And/or goods and services are being sold at
  higher prices

Question 21

Nominal GDP

Answer 21

• Production of goods and services

- Valued at current prices

Question 22

Real GDP

Answer 22

• Production of goods and services
• Valued at constant prices
• Designate one year as base year
• Not affected by changes in prices

Question 23

For the base year

Answer 23

Nominal GDP = Real GDP

Question 24

The GDP deflator

Answer 24

-Measure of the price level
-Ratio of nominal GDP to real GDP times 100
- =100 for the base year
- Measures the current level of prices relative to
the level of prices in the base year

Question 25

Inflation

Answer 25

• Economy’s overall price level is rising

Question 26

Inflation rate

Answer 26

Percentage change in some measure of the

price level from one period to the next

Question 27

The GDP deflator can be used

Answer 27

To take inflation out of nominal GDP (“deflate” nominal GDP)

Question 28

Larger GDP

Answer 28

• Good life
• Better healthcare
• Better educational systems

Question 29

GDP is not a perfect measure of well-being because…

Answer 29

It doesn't include 
- Leisure
- Value of almost all activity that takes place outside markets
- Quality of the environment
No distribution of income

Question 30

Rich countries, Higher GDP per person = Better

Answer 30

• Life expectancy
• Literacy
• Internet usage

Question 31

Poor countries, Lower GDP per person = Worse

Answer 31

• Life expectancy
• Literacy
• Internet usage