Module 2: Measuring GDP and inflation Flashcards
what is GDP?
total $ value of all final G&S produced in a country during a year
why are output and income considered the same?
because whatever spent on a product is income for the ones producing it
is every $ accounted for?
not illegal activities, depreciation etc. Financial services are imputed and electricity is extrapolated
2 examples of things that are not accounted as GDP?
indirect taxes and transfer payments (ex. lottery gains, subsidizes)
2 ways to estimate GDP?
income approach and expenditure approach
3 assumptions made when estimating expenditure approach?
1-furniture bought but not sold on a year accounts for inventory (called inventory expenditure)
2-antiques, etc only account for dealer’s services
3-substracting all imports including in components for produced goods
GDP expenditure formula?
C + I + G + X - M
new change the US made when calculating their GDP?
R&D is now accounted as investment, like machinery
what can make it confusing when comparing GDPs?
some countries have a bigger portion of economy in non formal markets. Oil spills, wars, natural disasters are accounted for so it can be misleading
GDP’s alternatives to calculate more general progress/well-being?
-HumanDevelopmentIndex (accounts for life expectancy, educational attainment…)
-GenuineProgressIndicator (accounts for income distribution, volunteer work, substracts crime pollution…)
real vs nominal GDP?
nominal is GDP valued at current prices, real is GDP without price influence
Formula for GDP delfator?
nominal GDP (current year 2023) / real GDP (base year 2009)
what does the deflator give us?
ratio physical output of 2023 value at 2009 prices
formula to calculate price index?
divide nominal current year by real base year and get let’s say 1.0829. You multiply by 100 and get 8.29% price increase since base year
how do you calculate real GDP?
nominal GDP current year divided by price index
