Econ Flashcards on GDP
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Questions and Answers

What does Gross Domestic Product (GDP) measure?

It measures total income of everyone in the economy and the total expenditure on the economy's output of goods and services.

What is GDP?

The market value of all final goods and services produced within a country in a given period of time.

What are the four components of GDP?

Consumption (C), Investment (I), Government Purchases (G), Net Exports (NX).

What is consumption?

<p>It is total spending by households on goods and services.</p> Signup and view all the answers

What is Investment?

<p>It is total spending on goods that will be used in the future to produce more goods.</p> Signup and view all the answers

What are Government purchases?

<p>Spending on goods and services by local or national governments, excluding transfer payments.</p> Signup and view all the answers

What are Net exports?

<p>Purchases of domestically produced goods and services by foreign entities, calculated as NX = exports - imports.</p> Signup and view all the answers

What is nominal GDP?

<p>The production of goods and services, valued at current prices.</p> Signup and view all the answers

What is real GDP?

<p>The production of goods and services valued at fixed prices.</p> Signup and view all the answers

Real GDP is calculated by ____.

<p>P1 x Q + P1 x Q</p> Signup and view all the answers

What is the GDP deflator?

<p>A measure of the overall level of prices.</p> Signup and view all the answers

How is the GDP deflator calculated? ____.

<p>GDP deflator = 100 x Nominal GDP / Real GDP</p> Signup and view all the answers

Nominal GDP is calculated by ____.

<p>P x Q + P x Q</p> Signup and view all the answers

What doesn't GDP account for?

<p>Household production, production in the underground economy, and the value of leisure.</p> Signup and view all the answers

What is inflation?

<p>An increase in the general price level of goods and services in the economy.</p> Signup and view all the answers

How is the GDP calculated? ____.

<p>C + I + G + (X - M)</p> Signup and view all the answers

Inflation rate in GDP is calculated by ____.

<p>100 x (GDP deflator in year - GDP deflator in year before) / GDP deflator in year before</p> Signup and view all the answers

What is the Consumer Price Index (CPI)?

<p>A measure of the overall cost of the goods and services bought by a typical consumer.</p> Signup and view all the answers

How is CPI calculated? ____.

<p>100 x (cost of basket in current year / cost of basket in base year)</p> Signup and view all the answers

What are the problems with the CPI?

Signup and view all the answers

How does the CPI differ from the GDP deflator?

Signup and view all the answers

Inflation rate in CPI is calculated by ____.

<p>100 x (CPI this year - CPI last year) / CPI last year</p> Signup and view all the answers

Study Notes

Gross Domestic Product (GDP)

  • Measures total income and total expenditure on the economy's output of goods and services.
  • Defined as the market value of all final goods and services produced within a country over a specified time period.

Components of GDP

  • Four main components:
    • Consumption (C)
    • Investment (I)
    • Government Purchases (G)
    • Net Exports (NX)

Consumption

  • Total spending by households on both goods and services.

Investment

  • Total spending on goods that will contribute to future production.

Government Purchases

  • Includes spending on goods and services by local or national governments, excluding transfer payments like social security.

Net Exports

  • Represents purchases of domestically produced goods and services by foreign entities, calculated as NX = exports - imports.

Nominal vs Real GDP

  • Nominal GDP values production of goods and services at current prices.
  • Real GDP values production of goods and services at fixed prices, eliminating inflation effects.

GDP Calculation

  • Calculated as: C + I + G + (X - M).
  • Real GDP calculated using fixed price values (P1 x Q + P2 x Q).

GDP Deflator

  • A measure of the overall level of prices in the economy.
  • Calculated through the formula: GDP deflator = 100 x Nominal GDP / Real GDP.

Limitations of GDP

  • GDP does not account for household production, underground economy activities, or the value of leisure.

Inflation

  • Defined as an increase in the general price levels of goods and services within an economy.

Consumer Price Index (CPI)

  • Measures the overall cost of goods and services bought by a typical consumer.
  • Calculated using the formula: 100 x (cost of basket in current year)/(cost of basket in base year).

Inflation Rates

  • Calculated for GDP using: 100 x (GDP deflator this year - GDP deflator last year) / GDP deflator last year.
  • CPI inflation calculated as: 100 x (CPI this year - CPI last year) / CPI last year.

CPI vs GDP Deflator

  • CPI measures changes in price levels for a typical consumer's basket, while GDP deflator reflects the price level changes of all final goods and services produced.

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Test your knowledge of Gross Domestic Product (GDP) with these flashcards. Learn about what GDP measures, its definition, and the key components that make it up. Perfect for students looking to strengthen their understanding of economic principles.

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