Lecture 2 - Measuring Macro Data Flashcards
What are the 3 approaches to viewing/measuring GDP?
- production approach
- expenditure approach
- income approach
What is meant by national accounting?
a process that looks at the state of an economy at a given time
Give the production definition of GDP
the total market value of domestically-produced final goods and services over a given period
Give the expenditure definition of GDP
the total expenditure on domestically-produced final goods and services over a given period
Give the income definition of GDP
the total income earned by domestically-located factors of production over a given period
What is a firm’s value added?
the value of its output minus the value of the intermediate goods the firm used to produce that output
Why do we not include intermediate goods when calculating GDP?
as the value of the final goods already includes the value of the intermediate goods
What formula is used for calculating GDP?
Y = C + I + G + NX
What is meant by consumption?
the value of all goods and services bought by households
What is the difference between durable goods and non-durable goods?
- durable goods last a long time (e.g. cars, home appliances)
- non-durable goods last a short time (e.g. food, clothing)
What are the 2 definitions for investment?
- spending on (the factor of production) capital
- spending on goods bought for future use
What are the 3 different types of investment?
- business fixed investment
- residential fixed investment
- inventory investment
What is meant by ‘business fixed investment’?
spending on plant and equipment that firms will use to produce other goods and services
What is meant by ‘residential fixed investment’?
spending on housing units by consumers and landlords
What is meant by ‘inventory investment’?
the change in the value of all the firms’ inventories
What is the equation for ‘gross fixed investment’ or ‘gross fixed capital formation’?
gross fixed investment = business + residential fixed investment
What is the equation for ‘Gross Capital Formation’?
- gross capital formation = GFCF + inventory changes
- (= Investment)
What does Government Spending include?
includes all government spending on goods and services
Why doesn’t government spending include transfer payments (e.g. unemployment insurance payments)?
- because transfer payments do not represent spending on goods and services
- it is instead a ‘transfer’ from one place to another
What is the definition and equation for NX (net exports)?
- net exports is the value of total exports minus the value of total imports
- NX = EX - IM
What is a stock, and what is a flow?
- a stock is a quantity measured at a point in time
- a flow is a quantity measured per unit time
In the US and the UK, what is the ratio of labour income to total income? (share of GDP to labour)
approximately 2/3
List 3 important components that GDP does not include
- home production (where parents raise and care for their children)
- goods or services not transacted in markets
- used good transactions
- housing services
- underground economy
List 3 issues for measuring GDP moving forward?
- gig economy
- digital economy
- intangible assets
What is the equation linking nominal GDP, real GDP, and the price level?
nominal GDP = price level x real GDP
What is the equation for the GDP deflator?
GDP deflator = Nominal GDP / Real GDP
What does a GDP deflator show?
- it shows how much a change in GDP relies on changes in the price level
- can be viewed as a measure of general inflation in the domestic economy
Define inflation rate
the rate at which prices change over time
Give 4 different measures of inflation
- GDP deflator
- Consumer Price Index (CPI)
- Harmonised Index of Consumer Prices (HICP)
- Retail Price Index (RPI)
How is CPI measured?
measures the prices of a typical basket of goods
What is the Harmonised Index of Consumer Prices (HICP)?
a measure of the overall level of prices for countries in the EU
How is RPI measured?
a CPI type of inflation measure which includes housing costs (e.g. mortgage prices, etc) among other things
What are the 3 main differences between CPI and the GDP deflator?
- prices of capital goods
- prices of imported consumer goods
- the basket of goods
How does CPI and the GDP deflator differ in relation to the prices of capital goods?
prices of capital goods are included in the GDP deflator (if produced domestically), but it is excluded from CPI
How does CPI and the GDP deflator differ in relation to the price of imported consumer goods?
included in CPI, excluded from the GDP deflator
How does CPI and the GDP deflator differ in relation to the basket of goods?
- CPI: fixed
- GDP deflator: changes every year
What are the 2 steps to make comparisons of GDP across countries?
- GDP must be expressed in a common currency by first adjusting it to the exchange rate
- this value of nominal GDP must be multiplied by the ratio of prices in the countries
- (the final number adjusts for differences in prices across countries)
