GDP etc. Flashcards
(34 cards)
What phenomena does macroeconomics study?
Economy-wide phenomena such as economic growth, inflation, unemployment, monetary policy, and fiscal policy.
What are the three equivalent approaches to measuring GDP?
The production approach (value added), the expenditure approach (C + I + G + X - M), and the income approach (sum of factor incomes).
What is the formula for the expenditure approach to GDP?
GDP = C + I + G + (X - M), where C = consumption, I = investment, G = government spending, X = exports, M = imports.
What is Net Domestic Product (NDP)?
NDP = GDP - depreciation (consumption of fixed capital), showing net output available after replacing worn-out capital.
What does depreciation capture in national accounts?
The wear-and-tear, obsolescence, and accidental damage to durable assets like machinery, buildings, and vehicles.
What is the GDP deflator?
A broad measure of the price level of all domestically produced goods and services, calculated as (Nominal GDP / Real GDP) × 100.
How is the GDP deflator calculated?
GDP Deflator = (Nominal GDP / Real GDP) × 100, where Real GDP is valued at base-year prices.
What is the Consumer Price Index (CPI)?
An index tracking the cost of a fixed basket of goods and services typically purchased by households, including imports.
What are key differences between the GDP deflator and the CPI?
The GDP deflator covers all domestically produced goods and updates weights annually; CPI covers consumer goods (including imports) and uses a fixed basket updated periodically.
What is nominal GDP?
The total value of all final goods and services produced in a period, measured using current-year prices.
What is real GDP?
The total value of all final goods and services produced in a period, measured using fixed base-year prices to isolate quantity changes.
How do you calculate real GDP using base-year prices?
Real GDP = Σ (Quantity of good_i in current year × Price of good_i in base year).
What is labor’s share of income?
The fraction of GDP paid to workers as wages, salaries, and benefits, calculated as Compensation of employees / GDP.
What is capital’s share of income?
The fraction of GDP paid to owners of capital (profits, rents, interest, dividends), calculated as (Gross operating surplus + Mixed income) / GDP.
What is the aggregate production function in macroeconomics?
Y = A × F(K, H), where Y = output, K = physical capital, H = efficiency units of labor, and A = total factor productivity.
What does the circular-flow diagram illustrate?
The equality of production, income, and expenditure in the economy by showing flows between households and firms.
What is structural transformation?
The shift in an economy’s sectoral composition—from agriculture to industry to services—as it develops.
What happens to the share of agriculture as economies develop?
Agriculture’s share of employment and GDP declines due to rising productivity and movement of labor to other sectors.
Why is NDP a useful measure?
Because it accounts for depreciation, indicating the net output available for consumption and new capital formation.
Name four limitations of GDP as a welfare measure.
Depreciation omission, externalities, underground economy, non-market activities like home production and leisure.
What is the underground economy?
Economic activity, often cash-based, that goes unreported to avoid taxes or regulations.
What is non-market activity?
Valuable goods and services produced for own use, such as household chores and leisure, not captured in GDP.
How often are CPI weights updated?
Periodically, e.g., every few years, so the basket composition remains fixed between updates.
Why use CPI for cost-of-living adjustments?
Because it reflects price changes faced by households for a representative basket of goods and services.
