Unit 3 - GDP, RGDP, PTT Flashcards
What is GDP?
Gross Domestic Product (GDP): The total market value of all final goods and services produced within a country annually.
It reflects the economic health of a nation.
Final vs Intermediate Goods
Final Goods: Products sold to consumers for use.
Intermediate Goods: Used to make other products; not included in GDP to avoid double counting.
What GDP Excludes
Nonmarket Goods: Volunteer work, household chores.
Underground Economies: Unreported activities (legal or illegal).
Leisure Time: Quality of life isn’t measured by GDP.
Personal Consumption Expenditures
Spending by households on:
- Durable Goods: Long-lasting (e.g., cars, appliances).
- Nondurable Goods: Quickly consumed (e.g., food, clothing).
- Services: Intangible items (e.g., healthcare, education).
Gross Private Domestic Investment
Includes spending on new capital goods, inventory changes, and housing.
Government Spending:
Expenditures on public services and infrastructure.
Net Exports:
Exports (goods sold abroad) minus imports (goods bought from other countries).
GDP as an Economic Indicator
Shows the overall size and health of the economy.
Helps policymakers design fiscal and monetary policies.
Consumer Spending’s Role
Makes up a large part of GDP.
Patterns in durable, nondurable goods, and services indicate economic stability.
Investments and Growth
Investment trends reveal business confidence and economic expansion.
Net Exports
Positive net exports: Strong, competitive economy.
Negative net exports: Reliance on imports, potential domestic industry challenges.
Nominal vs Real GDP
Nominal GDP (NGDP): Measured using current prices; does not account for inflation.
Real GDP (RGDP): Adjusts for inflation, using constant base-year prices, showing true economic growth.
Economic Growth
Measured by the change in RGDP over time.
Growth shows improvement; a decline signals economic contraction.
Business cycle Phrases
Peak: Economy at its strongest.
Contraction: Economic activity slows; unemployment rises.
Trough: Economy at its weakest point.
Recovery: Growth resumes; employment improves.
Expansion: Economy grows beyond previous levels.
Nominal GDP’s Limitations
Can mislead if inflation distorts the numbers
GDP Deflator
Measures inflation in the economy.
Broader than the Consumer Price Index (CPI), covering all goods and services.
Per Capita GDP
RGDP is divided by the population.
Indicates the average income per person and standard of living.
Real GDP’s Importance
Provides a clear view of economic performance.
Business Cycles and Policies
Recognizing cycles helps policymakers stabilize the economy.
During recessions, governments may boost spending; during expansions, they may slow inflation.
GDP Deflator
Essential for tracking price changes across all sectors.
Per Capita GDP
Reflects economic productivity and wealth distribution but doesn’t account for inequality
