The Data of Macroeconomics Flashcards
Chapter 2
What does GDP stand for?
Gross Domestic Product
Define Gross Domestic Product (GDP)
A measure of overall economic activity, defined as the total expenditure on final goods and services produced within a country’s borders.
What are the two definitions of GDP?
Total expenditure on final goods and services and total income earned by factors of production.
What is Expenditure?
The total amount spent on final goods and services in an economy, which equates to total income earned by sellers.
What is the circular flow in economics?
The continuous movement of money among households and firms, where firms provide goods and services to households, and households provide labor to firms.
Define Value Added
The value of output minus the value of intermediate goods used in the production process, representing the increase in value at each production stage.
What components make up GDP expenditure?
Consumption (C), Investment (I), Government spending (G), and Net exports (NX).
What is Consumption (C)
The total value of all goods and services purchased by households. Including: Durable Goods, Non Durable goods and services.
What is the role of government spending in GDP?
Government spending on goods and services contributes to GDP but does not include transfer payments.
What is Investment (I)
Spending on capital goods that will be used for future production, including business fixed investment, residential fixed investment, and inventory investment.
What does NX or XM stand for?
The difference between a country’s total exports and total imports.
Nominal GDP
GDP measured using current prices, without adjusting for inflation.
How does real GDP differ from nominal GDP?
Real GDP adjusts for inflation by measuring GDP using the prices of a base year, while nominal GDP uses current prices.
GDP Deflator
A measure of overall price changes in the economy, calculated by dividing nominal GDP by real GDP X 100.
What is the inflation rate?
The percentage increase in the overall level of prices in the economy over a specific period.
Consumer Price Index (CPI)
A measure that examines the average change over time in the prices paid by consumers for a market basket of consumer goods and services.
Real GDP Growth Rate
The rate at which a nation’s real GDP changes from one year to the next, adjusted for the effects of inflation.
What is the fundamental identity of GDP expenditure?
Y = C + I + G + NX, where Y is GDP, C is consumption, I is investment, G is government spending, and NX are net exports.
Chained Real GDP
A method of calculating GDP that updates the base year for inflation every year, providing a more accurate measure of economic growth.
What key factors are included in the CPI’s “basket”?
Food and beverages, energy, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services.
Why might the CPI overstate inflation?
Due to factors such as substitution bias, the introduction of new goods, and unmeasured changes in quality.
What is an Intermediary good?
A product used as an input to produce a final good and not counted separately in GDP to avoid double counting.
Define Money Metric Utility
A way of measuring utility in monetary terms, showing how much income a consumer needs to reach a certain level of satisfaction.
Define Inventory Investment
The change in the stock of unsold goods held by businesses; it is counted as part of investment (I) in GDP.
Positive if inventories increase
Negative if inventories decrease
