GDP Flashcards
GDP (definition)
- the final market value of all the final goods and services produced in the nation during a given year
- sum of VA for each producer in the economy
- total $ spent to buy US goods and services
- C+I+G+NX
3 points about GDP
1) market prices attach $ value to each good
2) only counts towards GDP within the nation produced
3) only counts if produced in the given year and not used entirely (old car sale wouldn’t count, intermediate goods also don’t count)
- only final goods are used to calculate the GDP
Intermediate good
produced and completely used in the same year
-doesn’t count towards GDP
Final Goods
any good sold to a household, new factories and equipment, inventory at the end of the year
-counts to GDP
Value Added
calculated at firm level
$ value of firm’s output
- $ value of intermediate goods used by this firm
goods that are produced but not sold
the firm “buys” these goods
VA for the firm
accounting profit+wages+rent+sales taxes+depreciation
4 types of buyers
1) US households
2) US firms
3) US government
4) rest of the world
Consumption (C)
total $ goods/ services bought by households (ex. new housing)
Gross investment (I)
total $ value of final goods and services bought by US firms (new factories/ equipment+ extra inventory at the end of the year)
Government spending on goods and services (G)
total $ value of final goods+ services the gov’t bought
(not the same as total gov’t spending)
ex. teacher salary, new road (count towards GDP)
unemployment payment, welfare (doesn’t count)
Net exports (NX)
US exports- US imports
Nominal GDP
$ value of that year’s production of final goods and services using that year’s prices
Real GDP
uses a base year and values each year’s GDP at base year prices
- closest way to find economic growth
2 reasons GDP is an underestimate of production
1) underground economy- production kept hidden for gov’t (criminal activity, off the books labor)
2) legal production without sales in the market (childcare, goods and services produced within a family)
