Module 14.1: GDP, Income, and Expenditures Flashcards
What is Gross Domestic Product (GDP)?
total market value of goods and services produced in a country within a certain time period. Used to measure size of a countries economy.
What are the two approaches to calculate GDP?
1) Expenditure approach - calculated by summing the amounts spent on goods and services produced.
2) Income approach - calculated by summing the amounts earned by households and companies during the period.
What is the value of final output method compared to sum-of-value -added method?
value of final out put - summing the values of all final goods and services produced
sum of value added method - summing the additions to value created at each stage of production and distribution.
What is nominal GDP? what is the formula?
total value of goods and services for a country.
formula = sum of [ price of x * quantity of x ]
What is real GDP?
same as nominal GDP, but uses base prices of the previous year to exclude inflation.
What is the GDP deflator?
a price index that can be used to convert nominal GDP to real GDP.
formula = (nominal GDP in year t / value of year t output at base year) * 100
Using the expenditure approach, what are the components of real GDP
GDP = C + I + G + (X-M) C = consumption I = business investment G = government X = exports M = imports
under the income approach, what are the components of GDP? or GDI (gross domestic income)
GDP = national income + capital consumption allowance + statistical discrepancy.
What is a capital consumption allowance?
measures the depreciation of physical capital from the productionof goods and services over a period.
What are the components of national income?
Compensation of employees Corporate and gov profits interest income unincorporated business profits rent indirect business taxes - subsidies
What is personal income? How does it differ from national income?
measure of the pretax income received by households and is one determinant of consumer purchasing power and consumption.
personal income and national income differ b/c personal income includes government transfer payments such as unemployment or disability benefits.
What is household disposable income?
personal income after taxes.
What is the formula for solving household and busines savings (āSā)?
S = I + (G - T) + (X-M)
What is the fiscal balance?
(G-T) the difference between gov spending and tax receipts.
What is the trade balance?
(X-M) the difference between imports and exports.
