Gross Domestic Product (GDP) Flashcards
GDP
The Definition of GDP is the market value of all finished goods and services produced within a ___country____ in a ____year______.
calculate GDP
GDP = C + I + G + (X-IM)
C= Consumer Spending
I= Investment (generally business capital investments)
G = Government Spending
X = Exports
Im = Imports
Nominal GDP is recorded in terms of
actual dollars.
Real GDP accounts for
inflation
The economy is constantly evolving:
What we produce
How we produce it (technology)
Our relationships to other people
It’s very important to study economic history
Provides perspective to today’s capitalism
Proves that the status quo isn’t permanent
Economics
is also in constant flux, changing alongside the economy
A Short History Of The Economy
Hunter-gatherer societies
No surplus.
Very flat social structure.
Agrarian
Permanent settlements
Barter and trade
Currency invented
Feudalism
A more sophisticated, subtle class structure.
Peasants did the work, landlords collected surplus
Mercantilism
Birth of independent business owners.
Growth of business through loans
Expectation of return on loans
Capitalism
Social structures evolved to match the needs of new technology that produced much larger surplus.
Every economy must produce enough to keep its participants alive, and to allow production to continue next year.
Subsistence for the people.
Replace inputs to production (eg. seeds for next year’s crop).
Production above and beyond this is the “economic surplus.”
It can be consumed, invested, or wasted.
Control & use of the surplus is a key dimension of economic organization.
Different economic systems do it differently.
Common Themes and Lessons
Work is the source of all value added, no matter what the economic system.
Humans learn by doing: as we work, we learn how to work better (technology).
Social relationships and the organization of our work change with technology.
Every society which produces a surplus, must decide who gets it, and what they do with it.
Nothing in the economy is permanent.
Attempts to portray capitalism as “natural” or “ever-lasting” are ideological
Adam Smith- The Classical Economists
Wrote at dawn of capitalism.
Analyzed society in terms of broad classes, historical change.
Celebrated creativity and thrift of the new class of capitalists.
Identified division of labour as source of productivity in new industry.
Believed prices reflected labour values, and that wages tended to subsistence.
Markets and competition will lead to mutual benefits (including through international trade).
Karl Marx
Critiqued the inhumanity and exploitation of capitalism.
Argued that profit reflects exploitation, not the real productivity of capital.
Predicted that capitalism would end because of internal conflicts and instability.
Recognized that prices do NOT equal labour values, but tried to explain how they are related to labour values.
Co-founded international workers’ political party.
John Maynard Keynes
Wrote in context of 1930s: prolonged depression which disproved neoclassical model.
Explained why long-run unemployment might exist.
Showed that output and employment depend on spending power (“aggregate demand”).
Advocated government intervention (spending, tax changes) to offset recessions.
Intellectual underpinning for New Deal policies.
In long-run, urged socialization of investment.
Milton Friedman- Monetarist
Neoclassical theory tolerated Keynesian ideas until 1970s.
Breakdown of Golden Age spurred rejuvenation of core faith in private markets.
Milton Friedman: government intervention only causes inflation and unemployment.
Advocated monetary targeting (“monetarism”) to control inflation, labour market “flexibility” (eg. deunionization) to solve unemployment.
Intellectual underpinning for neoliberalism.
