Economy's income and expenditure
What does the acronym GDP stand for?
Gross Domestic Product
What are the four components of GDP (via the expenditure approach)?
Consumption, Investment, government purchases, and net exports
What is the production of goods and services valued at current prices?
Nomial GDP
GDP per person tells us the income and expenditure of the ________ person in the economy
average
What two things does GDP measure?
The total income of everyone in the economy and total expenditure on the economy's output of goods and services
Is buying a house an investment or consumption?
The purchase of a new house is considered an investment. Hopefully, the money you spend on the house will in turn generate you more money when you sell, rent out, or use the house for your financial gain.
What is the production of goods and services valued at constant prices?
Real GDP
Why should policymakers care about GDP?
Although GDP is not a perfect measure of well-being, policymakers should care about it because a larger GDP means that a nation can afford better healthcare, better educational systems, and more of the material necessities of life.
GDP is calculated using the market value of all intermediate goods or final goods?
Final goods
What are government purchases? Give an example.
Spending on goods and services by local, state, and federal governments; salaries of government workers and spending on public works
What is a better measure of economic well-being (Nominal GDP or real GDP? Why?
Real GDP is a better measure of economic well being because it is corrected for inflation
Why is GDP a good measure of economic wellbeing for most, but not all purposes?
GDP includes many things, but it also leaves out a lot of things as well. Example. 100 people with an annual income of $50,000 has a GDP of $5 million. A society in which 10 people earn $500,000 and 90 suffer still have a GDP of $5 million, but they are not equivalent.
How can an economy's income be the same as its expenditure?
Every transaction has two parts to it: a buyer and a seller. If someone spends a dollar, that dollar is an income for someone else.
What is the difference between intermediate goods and final goods?
Intermediate goods are goods that go into the production of final goods. An example of such would be the dough (intermediate good) that goes into the production of the final good (donuts)
What are Net Exports? Give an example that would increase net exports.
Net exports are spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports). A domestic firm's sale to a buyer in another country, such as the Boeing sale to British Airways, increases net exports.
What is the goal in computing GDP?
GDP is used to measure how well the overall economy is performing. Because GDP measures the economy's production of goods and services, it reflects the economy's ability to satisfy people's needs and desires.
A country with higher GDP typically implies _______ standard of living
Higher
What problem will we encounter if we add the total market value of dough and the total market value of donuts in reporting GDP?
We will encounter the problem of double-counting, because the market value of the final donuts will have already included the value of the dough in it.
What contributes more to GDP- the production of a pound of hamburger or the production of a pound of caviar? Why?
A pound of caviar contributes more to GDP because it costs more than a pound of hamburger. The contribution to GDP is measured by market value and the price of a pound of caviar is much higher than the price of a pound of hamburger.
What is the equation for finding GDP?
Y = C + I + G + NX
What is the GDP deflator, and how is it calculated?
A measure of the price level calculated as the ratio of nomial GDP to real GDP times 100; reflects the prices of goods and services but not the quantities produced
List a few things that GDP excludes in its calculations
Leisure, clean environment, beauty of poetry, quality of education, health of children, intelligence, etc.