Ch 6 Flashcards
(23 cards)
Parts of GDP
- Consumption
- Private investment
- Government purchases
- Net imports
GDP equation
GDP=C+I+G+X-M
(X-M)= net imports
Flow Variable
Variable measure over a specific period to time
Stock Variable
Variable that is independent of time (snapshot of economy)
Personal Consumption
Flow variable that measures value of goods/services purchased by households during a time period
Gross Private Domestic Investment
Value of all goods produced during a period for use in production of other goods.
Government purchases
All purchases of goods/services from firms by government agencies plus total value of output produced by government agencies during a time period
Transfer payments
Payments that do not require recipient to produce a good or service to receive (social security, Medicaid, etc.)
Net Exports
Exports minus imports
Trade Deficit
Net exports is negatives
Trade surplus
Net exports positive
GDP Expenditure approach
C+I+G+X-M=GDP
GDP Value Added approach
GDP= sum of value added at each stage of production
Gross Domestic Income
Total income generated by economy by production of final goods/services
Components of GDI (gross domestic income)
- Employee compensation
- Profits
- Rental income
- Net interest
- Depreciation
- Indirect taxes
GDI equation
GDI=W+R+I+P+D+IT
W=labor R= land I= capital P= profit D=depreciation IT= indirect taxes
Disposable personal income
Income households have available to spend on goods/services
Shortcomings of GDP approach in measuring economic well-being
- DIY work
- Underground activity (illegal, barter, cash)
- Leisure activities
Additional problems of GDP measurement
- Revisions take place
- Service sector is difficult to measure
- GDP accounts ignore ‘bads’
- crime spending
- negative externalities
- environmental pollution
More GDP does not necessarily equate to more “human happiness”
Per Capita real GNP or GDP
Countries real GNP or GDP decided by population
GDP definition
Total worth of production within nations boundaries by nationals/foreigners over 1 year
GNP definition
Estimated total worth of production of a nations citizens on its land or foreign land over 1 year.
Not Part of GDP
1. Intermediate goods
Tires to go on car in manufacturing
2. Used goods
3. Financial transactions
Social security, Medicaid, unemployment
4. U.S. Based company producing overseas
5. House hold production
6. Leisure
7. Pollution, Crime, Natural Disasters
8. Underground economy
9. Unreported legal business activities
Tips, self employed
