Week 1 Flashcards
(18 cards)
What is GDP?
The market (monetary) value of the final goods and services produced in a country during a given period.
Short-run fluctuations in GDP are associated with the _____ _____.
Long-run fluctuations in GDP are associated with _____ _____ _____.
business cycle, better living standards
Why use a log scale?
- Handling Exponential Growth: Economies often grow at a roughly constant rate, leading to exponential growth over time. A log scale makes this appear as a straight line, simplifying trend analysis.
- Comparing Growth Rates: Logarithmic scales show relative changes, making it easier to compare growth rates over time.
- Reducing Variability: A log scale minimizes large fluctuations, highlighting the overall trend rather than short-term changes.
- Easier Interpretation: A log scale lets the same relative change appear as the same vertical distance, regardless of GDP level, enhancing interpretability.
How are public goods counted in GDP?
They don’t have market prices, so are counted at their cost of provision (imputed).
Why are only final goods and not the value of intermediate goods counted in GDP?
- The market value of final goods embodies the cost of intermediate products.
- Avoids “double counting”.
GDP vs GNI.
GNI: Gross National Income.
GNI measures the total income earned by a country’s residents, regardless of where they are located.
GNI = income measure of GDP + net income from abroad/non-residents.
What are the 3 approaches to measuring GDP?
- Final Goods or Expenditure Approach.
- Production or Value-Added Approach.
- Income Approach.
What does the final goods / expenditure approach think of GDP as?
What is the formula?
Expenditure aide extremely useful for thinking about _____ _____.
Thinks of it in terms of who buys the goods and services.
GDP = C + I + G + X - M
economic fluctuations
What is the formula for GDP in the production or value-added approach?
What is the formula for value added?
Production accounts show how each _____ is _____.
GDP = sum of value added of all firms in an economy
GDP = Value added = firms’ revenue - cost of intermediate inputs
industry, performing
How does the income approach think of GDP?
What is the formula for GDP in the income approach?
Thinks of GDP in terms of where payments for goods and services go.
GDP = Compensation of Employees (wages) + Gross Operating Surplus (profits + depreciation + interest) + Indirect Taxes (taxes on production minus subsidies)
In the income approach,
Y (GDP) ≡ ?
How to calculate each component of the formula?
Y (GDP) ≡ labour income + capital income + (net taxes)
Labour income = wage per unit * quantity of labour
Capital income = return per unit * quantity of capital
Net taxes = indirect taxes - subsidies.
Difference between nominal and real GDP? What’s the problem with nominal GDP?
Nominal = sum of price * quantity OVER ALL GOODS.
This can mislead when comparing GDP over time, as it can rise simply due to higher general prices (inflation) rather than the production level.
Real GDP accounts for inflation.
What is the formula or average growth rate in real GDP between two years?
Show the chain-weighted GDP measure.
Why does Nominal GDP grow faster than Real GDP?
When do they coincide?
Nominal GDP grows faster as it includes inflation and real GDP only reflects volume changes (if prices increase but volume remains unchanged, nominal will increase but real does not).
They coincide in the base year and when there is no inflation or deflation.
How do you go from nominal to real GDP?
What is the GDP deflator?
What is its formula?
Measure of the aggregate price level in an economy - shows how much prices have increased relative to the base year.
What does GDP not consider / excludes?
