ch.23 Flashcards
(24 cards)
What is gross domestic product (GDP)?
The market value of all final goods and services produced within a country in a given period of time.
How is GDP related to a nation’s total income and spending?
It measures the total income of everyone in the economy and the total expenditures on the economy’s output of goods and services.
What must be true for the economy as a whole regarding income and expenditure?
Income must equal expenditure.
What are the components of GDP?
- Consumption (C)
- Investment (I)
- Government purchases (G)
- Net exports (NX)
What does GDP only include?
Final goods intended for the end user, not intermediate goods used in production.
What types of goods are included in GDP?
Both tangible and intangible goods.
What does GDP measure during a specific time interval?
A country’s economic flow of income and expenditure.
What is the formula for calculating GDP?
Y (GDP) = C + I + G + NX
What happens to GDP when Aadil spends $200 on dinner?
Consumption and GDP rise by $200.
How does Naqeeb’s $1,800 spending on a laptop affect GDP?
Investment rises by $1,800, net exports fall by $1,800, GDP is unchanged.
What is the impact of Tariq’s $1,200 computer purchase on current GDP?
Current GDP and investment do not change, because the computer was built last year.
What occurs when a motor car manufacturer builds $500 million worth of cars?
Consumption rises by $470 million; inventory investment rises by $30 million, and GDP rises by $500 million.
What are the two versions of GDP due to inflation?
- Nominal GDP
- Real GDP
What is nominal GDP?
Values output using current prices and is not corrected for inflation.
What is real GDP?
Values output using the prices of a base year and is corrected for inflation.
What is the GDP deflator?
A measure of the overall level of prices.
How is the GDP deflator calculated?
GDP deflator = 100 x (Nominal GDP / Real GDP)
What does real GDP per capita indicate?
The average person’s standard of living.
What aspects does GDP not value?
- The quality of the environment
- Leisure time
- Non-market activity, such as childcare
- An equitable distribution of income
Is GDP a perfect measure of economic well-being?
No, it is not a perfect measure of well-being.
What does GDP measure?
A country’s total income and expenditure.
What are the four components of GDP?
- Consumption
- Investment
- Government purchases
- Net exports
How is nominal GDP different from real GDP?
Nominal GDP is measured using current prices while real GDP is measured using the prices of a constant base year.
Is GDP the main indicator of a country’s economic well-being?
Yes, even though it is not perfect.
