GDP Flashcards
GDP
Gross Domestic Product - measures the total value of all final goods and services produced in an economy during a given period (does not include intermediate goods
Aggregate spending
the sum of C + I + G + (X - M). This sum is the total spending on final goods and services produced domestically
3 ways to calculate GDP
- C + I + G + (X-M)
- Adding up the value of all producers
- Add up all the income paid to factors of production
What are the four components of GDP?
Consumption, Investment, Government Spending, Net Exports
These components are essential for calculating a country’s total economic output.
Define Consumption in the context of GDP.
Spending by households on goods and services (excluding new housing)
Examples include cars, washing machines, food, clothing, haircuts, and entertainment.
What does Investment refer to in GDP?
Purchase of buildings, equipment, and machinery that contribute to future output
This includes spending on capital equipment, inventories, structures, and new housing.
What is Government Spending in GDP calculations?
Government spending on goods and services by local and national governments
This includes salaries of government workers and spending on public works.
What is a transfer payment?
A payment for which no good or service is exchanged
An example is a government paying social security benefits to an elderly person.
Define Net Exports.
The purchase of domestically produced goods and services by foreigners minus imports
Exports generate income for a country, while imports result in funds leaving the country.
How does the inclusion of imports affect GDP?
Imports reduce net exports and raise consumption, but do not contribute to GDP
Imported goods and services are included in consumption, investment, and government purchases.
What is GDP per capita?
Total GDP of a country divided by the total population
It measures the income per head in that country and is useful for comparing GDP across different countries.
True or False: Government Spending includes only the purchase of goods.
False
Government Spending also includes salaries of government workers and public services.
Fill in the blank: _______ is the total sum of spending on capital equipment, inventories, and structures.
Investment
Investment is crucial for future economic growth.
What is one formula to calculate GDP?
GDP = C + I + G + NX
C = Consumption, I = Investment, G = Government Spending, NX = Net Exports
What is the definition of GDP?
GDP is the value of final goods and services produced in the economy during a period of time
How can GDP be calculated using producers?
By adding up the value added of all producers
What does ‘value added’ mean?
The value of a firm’s production minus the value of intermediate goods used in production
How can GDP be calculated using incomes?
By adding up all income paid to factors of production
What is real GDP?
A measure of the total quantity of goods and services the economy is producing, unaffected by changes in prices
What is nominal GDP?
A measure that reflects changes in prices of goods and services sold
What does a real increase in GDP indicate?
The economy is producing a larger output of goods and services
What does a nominal increase in GDP indicate?
Goods and services are being sold at higher prices
True or False: Real GDP accounts for changes in prices.
False
True or False: Nominal GDP reflects the total quantity of goods and services produced.
False
What is real GDP?
The production of goods and services valued at constant prices.
What hypothetical question does real GDP answer?
What would be the value of the goods and services produced this year if valued at prices from a specific year in the past.
How does real GDP show changes in the economy?
It shows how an economy’s overall production of goods and services changes over time.
What is GDP at constant prices?
GDP calculated using prices that existed at a particular base year, accounting for inflation.
What does nominal GDP represent?
The production of goods and services valued at current prices.
How is GDP at current or market prices calculated?
By multiplying the output of goods and services by the price of those goods and services in the reporting year.
What is the formula for calculating the real GDP?
- Choose a base year
- Use the prices of goods and services in the base year
- Calculate the value of goods and services in all years
What is the growth rate of real GDP in year b?
GDPb - GDPa / GDPa x 100
Fill in the blank: Real GDP shows how an economy’s overall production of goods and services changes _______.
over time.
True or False: Nominal GDP is affected by changes in prices.
True
What does nominal GDP reflect?
Both the prices and quantity of goods and services in the economy
What does real GDP reflect?
Only the quantity of goods and services in the economy
How is the GDP deflator calculated?
nominal GDP / real GDP x 100
What does the GDP deflator measure?
The price level in the economy
What value does the GDP deflator equal in the base year?
100
If quantities produced increase but prices remain the same, what happens to the GDP deflator?
It remains constant
If prices rise and quantities stay the same, what happens to the nominal GDP and GDP deflator?
Nominal GDP increases and GDP deflator rises
How can real GDP be found?
nominal GDP / GDP deflator
What is the primary use of the GDP deflator?
To monitor the general level of prices in the economy
What do chained dollars represent?
Changes in real GDP using the average growth rate from early and late base years
What is annual chain-linking?
A method of calculating GDP volume measures based on prices in the previous year
What does gross value added (GVA) represent?
The contribution of domestic producers, industries, and sectors to an economy
What does nominal GDP reflect?
Both the prices and quantity of goods and services in the economy
What does real GDP reflect?
Only the quantity of goods and services in the economy
How is the GDP deflator calculated?
nominal GDP / real GDP x 100
What does the GDP deflator measure?
The price level in the economy
What value does the GDP deflator equal in the base year?
100
If quantities produced increase but prices remain the same, what happens to the GDP deflator?
It remains constant
If prices rise and quantities stay the same, what happens to the nominal GDP and GDP deflator?
Nominal GDP increases and GDP deflator rises
How can real GDP be found?
nominal GDP / GDP deflator
What is the primary use of the GDP deflator?
To monitor the general level of prices in the economy
What do chained dollars represent?
Changes in real GDP using the average growth rate from early and late base years
What is annual chain-linking?
A method of calculating GDP volume measures based on prices in the previous year
What does gross value added (GVA) represent?
The contribution of domestic producers, industries, and sectors to an economy
