Chapter 6: GDP Flashcards
What are the goals of macroeconomic policy? (3)
- Economic Growth
- Low Unemployment
- Low Inflation
How do economists typically measure the size of a nation’s overall economy?
GDP / Gross Domestic Product
GDP \ Gross Domestic Product
Value of all final goods and services produced in a country in a given year
What type of goods and services are excluded from GDP?
- Intermediate
- Illegal
- Used
- Income transfer payments (like Social Security, unemployment)
What country has the largest GDP in the world? What was its 2016 GDP?
United states
$18.6 trillion
Who measures GDP?
Government economists at the Bureau of Economic Analysis, within the US Department of Commerce
How often is a business census conducted in the US?
Once every five years
In the 2nd and 7th year of each decade
Trade Balance
Gap between imports and exports
Trade Surplus
Nation’s exports are greater than its imports
Trade Deficit
Nation’s imports are greater than its exports
Physical Components of GDP (5)
- Durable goods
- Nondurable goods
- Services (largest category)
- Structures
- Inventories (change in)
5 Components of GDP
- Consumption (consumer spending)
- Investment (business spending)
- Government spending
- Imports
- Exports
Demand Components of GDP (5)
- Consumption (consumer spending)
- Investment (business spending)
- Government spending
- Imports
- Exports
Investment
GDP definition
Business spending. Purchase of new capital goods and equipment, real estate, and inventories
Investment Expenditure
Purchases of physical plant and equipment by businesses
How much of the GDP does investment typically make up?
Why is it important
15-18%
This is typically where jobs are created
How much of the GDP does government spending typically make up?
20%
Are government transfer payments, such as unemployment benefits and SS payments to seniors, included in GDP?
No. The government does not receive a good or services in exchange. These are income transfers.
GDP equation
GDP = Consumption + Investment + Government + (Exports - Imports)
Consumption
Consumer spending
Double-Counting
Counting output more than once as it travels through production stages
Intermediate Goods
Goods that go into the production of other goods
excluded from GDP calculations
Depreciation
Capital ages and loses its value
GNP / Gross National Product
GDP + production by domestic businesses abroad - production by foreign businesses within nation’s borders
