EXAM 2 Flashcards
(48 cards)
gross domestic product (GDP)
the MARKET VALUE of all FINAL GOODS produced IN A COUNTRY in a PERIOD OF TIME
market value
value to buyers / cost of production of all durable and non-durable goods/services
market value calculation
price x quantity
what is included in GDP?
final goods and services,
produced in the country’s borders,
produced in the measured period, not after
what is not included in GDP?
intermediate goods,
used goods (resales),
financial transactions (stocks & bonds),
illegal activities,
unpaid household chores
final goods and services
sold to end consumers, calculated in GDP
intermediate goods
used up in production, not calculated in GDP
durable goods
last more than one year
non-durable goods
last less than one year
nominal GDP
measured in CURRENT PRICES, reflects DOLLAR VALUE of all goods and services produced
real GDP
measured in CONSTANT PRICES (base year), reflected PHYSICAL QUANTITY of goods and services produced
real GDP calculation
price (base) x quantity (current)
4 components of total spending
consumption + investment + government + net exports
(C+I+G+NX)
consumption (C)
spending by household on final goods and services, except the purchase of new housing (investment)
investment (I)
business spending on equipment, investments, and structures (includes new housing)
government purchases (G)
government spending on goods and services (defense, salaries)
what is not included in gov’t purchases?
transfer and investment payments (social security, medicare, national debt interest)
net exports (NX)
exports minus imports
consumer price index (CPI)
measures overall level of prices for goods/services bought by a typical consumer (baskets)
3 measurement biases
substitution bias,
new goods,
quality improvement/changes
substitution bias
ignores consumer switching to cheaper alternatives
new goods
increases choices, but CPI doesn’t account for them immediately
expenditure calculation
price x FIXED quantity
CPI calculation
exp. current / exp. base
