Teat 2 Flashcards
(23 cards)
What gdp measures and what it excludes
Total market value of all its goods and services produced within a country. Excludes intermediate goods, illegal transactions, used goods, household production, financial transactions
C + I + G + NX
C - consumption ( household spending on goods/servecss, not new houses)
I
Investment ( business capital, new homes, inventories)
G
Government purchases (not transfers)
NX
Net Exports = Exports - Imports
Nominal GDP
Uses current year prices
Real GDP
Uses base year prices
Real GDP = (Nominal GDP / GDP Deflator) × 100
When do you use it?
You’re given nominal GDP and deflator; asked to find real GDP (inflation-adjusted).
GDP deflator when do you use?
When your giving no signal and real gdp, asked about inflation or deflator, involves comparing output at differ prices
Inflation rate
Question provides CPI data for 2 years and mentions inflation, price increase, or change in cost of living
Real interest rate,
You’re given nominal rate
• You’re given inflation
• You’re asked about purchasing power
Use real interest rate formula.
Nominal GDP, when to use it
Asked to calculate GDP from raw data (prices and quantities).
• Clue: “What is GDP?” and they give you quantities and prices
If there are diminishing returns to capital then?
It increases in capital stock and increases output my ever small amounts
Nominal GDP equals real GDP in the?
Base year
Circular flow
It shows the flow of money goods and resources in the economy
Circular flow sectors
Product market and factor market
Product market
Households buy goods and services while firms sell them
Factor market
Firms buy labor, land and capital,
Households sell resources
CPI weights
What consumers purchase more
Nominal GDP
Total market value of all final goods and services produced within a country in a giving period of time
Real GDP
The value of all final goods and services produced in a country in a given period of time
Used goods are
Not included in GDP
An increase in GDP deflator means
Inflation
