GDP Flashcards
What does Gross Domestic Product measure?
- it measures total income of everyone in the economy
- it also measures total expenditures on the economy’s output of g&s (goods and services)
–> The market value of all final goods and services produced within a country in a given period of time
What are the components of GDP?
Recall: GDP is total spending
• Four components:
– Consumption (C)
– Investment (I)
– Government Purchases (G)
– Net Exports (NX)
GDP is Y
What is consumption?
total spending by household on Goods and services
What is investment?
total spending on goods that will be used in the future to produce more goods
What is Government Purchases?
all spending on goods and services purchased by the government at the federal, state and local levels
What is net exports? (NX)
export - import
export represent foreign spending on the economy’s good and services
imports are the portions of C, I and G that are spent on goods and services produced abroad
What is the difference between nominal GDP and real GDP?
nominal is GDP measured using the current prices
real is GDP measured using constant prices from the base year (e.g. 2011).
Hence, real GDP is adjusted for inflation, nominal is not!
What is the GDP deflator?
How is it calculated?
What do GDP not value?
- the quality of the environment
- leisure time
- non-market activity, e.g. child care
- an equitable distribution of income
What is private savings?
The portion of households’ income that is not used for consumption or paying taxes
= Y - T - C
What is public savings?
Tax revenue minus government spending
= T - G
What are national savings?
private + public savings
= (Y - T - C) + (T - G)
= Y - C - G
What is true for a closed economy about the national savings and the GDP formulae?
savings = investment
When is it budget surplus and budget deficit?
Budget surplus: T > G
Budget deficit: T < G
