Week 8 - GDP & Economic Growth Flashcards
(46 cards)
What is real GDP per capita a measure of?
rough measure of a country’s standard of living
Define GDP
Gross Domestic Product: the market value of all finished goods and services produced within a country in a year
GDP per capita
GDP divided by popn
Why does GDP use market values of goods/services rather than quantities?
A economy’s total output includes millions of different goods and services. Some are more valuable than others, so we cannot just add all the quantities.
What are intermediate goods?
goods sold to firms and then bundled or processed with other goods or services for sale at a later stage
What are finished goods?
goods sold to final user and then consumed or held in personal inventories
Which goods are included in GDP - intermediate or finished? Why? Exceptions?
Finished goods only - to avoid double counting
NOTE: machinery and equipment used to produce other goods are included in GDP
GDP includes the market values of both goods and services - name some services/
Haircare, medical care, transportation
GDP measures production - which things does this mean are NOT added to GDP?
any sales of used goods e.g.old houses, used goods, financial assets
GDP only measures NEW production
GDP vs GNP
US GDP only measures goods and services produced by labour and capital LOCATED in the US, REGARDLESS of the nationality or workes/property owners, in a year
whereas
GNP only measures the goods and services produced by labour and capital supplied by US PERMANENT RESIDENTS (located anywhere), in a year
Define GNP
the market value of all finished goods and services produced by a country’s permanent residents, wherever they are located, within a year
What is national wealth?
the value of a nation’s entire stock of assets
National wealth vs GDP
National wealth: value of nation’s entire stock of assets
GDP: how much nation has produced in a year, not how much it has accumulated in its entire history
Who calculates GDP?
BEA (Bureau of Economic Analysis), part of Dept of Commerce
In which 3 ways do economists split the production of goods and services?
- National spending approach: Y=C+I+G+(Exports-Imports)
- Factor income approach: Y=Employee compensation + Rent + Interest + Profit
- Value added per firm approach: value of sales - costs of intermediate goods (this value is added for all firms within economy)
National Spending Approach
Y = C + I + G + NX
y - gdp
c - consumption
i - investments
g - govt purchases
nx - exports-imports
Factor income approach, Why does this work and any adjustments needed?
Y = Employee compensation + Rent + Interest + Profit
whenever a consumer spends money, the money is received by workeds, landlords, owners of capital and bizs -> so can add up all of incomes received to make GDP
when using this approach, make adjustments for things like SALES TAXES
Value added approach
Y = value of sales - cost of intermediates goods, SUMMED UP FOR ALL FIRMS IN ECONOMY
What is the Rule of 70 in economics?
Yearstodouble = n x (70 / AnnualrealGDPgrowthrate(%) )
n = power of double, 2^n , e.g quadrupling is x4 or x2^2 so n=2
if real gdp rate was 2%, it would be 70/2 = 35 so 35 years to double
What do economists mean by the natural resource curse?
That large amounts of natural resources tend to create bad politics. As long as the oil keeps flowing or the diamonds remain plentiful, political leaders do not need to care much about what goes on in the rest of the country
How is Nominal GDP calculated? Why does this create problems when comparing GDP over time?
using prices AT TIME OF SALE
e.g. 2018 GDP calculated using 2018 prices
creates problems bc we can’t tell if an increase in nominal GDP was due to greater production or increases prices & GDP is only a measure fo standard of living bc it considers production not price changes
Define Nominal Variables
not adjusted for price changes, inflation
To remove the effects of pricing, how do we calculate real GDP?
using constant prices
2017 real GDP (in 2018 dollars):
2018 prices × 2017 quantities = $19.99 trillion
If prices in 2017 and 2018 were the same, GDP in 2017 would have been $19.99 trillion.
2018 nominal GDP:
2018 prices × 2018 quantities = $20.58 trillion
2017 nominal GDP:
2017 prices × 2017 quantities = $19.52 trillion
How have real variables been adjusted from nominal variables?
adjsuted for inflation/changes in price by USING SAME SET OF PRICES IN ALL TIME PERIODS
