Podcast
Questions and Answers
Which of the following best describes what GDP measures?
Which of the following best describes what GDP measures?
- The sum of all income earned by a country's residents.
- The total value of all transactions in an economy.
- The total wealth of a country's citizens, including assets held abroad.
- The value of all goods and services produced within a country's borders. (correct)
Which transaction would be included when calculating GDP?
Which transaction would be included when calculating GDP?
- Government social security payments to retirees.
- The purchase of a used car from a neighbor.
- The construction of a new factory. (correct)
- The sale of shares of stock on the stock market.
In GDP accounting, what is the largest component in most economies?
In GDP accounting, what is the largest component in most economies?
- Personal Consumption Expenditures (correct)
- Net Exports
- Gross Private Investment
- Government Purchases
In the context of GDP accounting, how is 'investment' defined?
In the context of GDP accounting, how is 'investment' defined?
Why is nominal GDP different from real GDP?
Why is nominal GDP different from real GDP?
Suppose nominal GDP increases by 5% while real GDP decreases by 2%. What can be concluded?
Suppose nominal GDP increases by 5% while real GDP decreases by 2%. What can be concluded?
Which activity would not be included in a country's GDP calculation?
Which activity would not be included in a country's GDP calculation?
What is the key difference between the income approach and the expenditure approach to calculating GDP?
What is the key difference between the income approach and the expenditure approach to calculating GDP?
Why are imports subtracted when calculating GDP using the expenditure approach?
Why are imports subtracted when calculating GDP using the expenditure approach?
Which of the following best characterizes the business cycle?
Which of the following best characterizes the business cycle?
What is the generally accepted definition of a recession?
What is the generally accepted definition of a recession?
Which scenario accurately describes the conditions present during an economic expansion?
Which scenario accurately describes the conditions present during an economic expansion?
How does unemployment typically behave during a recession?
How does unemployment typically behave during a recession?
Which of the following indicators offers the most appropriate means of comparing living standards across different nations?
Which of the following indicators offers the most appropriate means of comparing living standards across different nations?
In the context of the business cycle, what does a peak signify?
In the context of the business cycle, what does a peak signify?
Which factor is most likely to contribute to long-term GDP growth?
Which factor is most likely to contribute to long-term GDP growth?
What conclusion can be drawn if GDP grows at a higher rate than the population?
What conclusion can be drawn if GDP grows at a higher rate than the population?
Under what conditions does real GDP per capita experience growth?
Under what conditions does real GDP per capita experience growth?
Flashcards
GDP Definition
GDP Definition
The total value of all goods and services produced within a country's borders.
GDP inclusion
GDP inclusion
A newly constructed house.
Largest GDP Component
Largest GDP Component
Consumer spending on goods and services.
GDP Investment
GDP Investment
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Nominal GDP
Nominal GDP
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Real GDP
Real GDP
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Nominal GDP Growth, Constant Real GDP
Nominal GDP Growth, Constant Real GDP
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GDP Exclusions
GDP Exclusions
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Why are imports subtracted from GDP?
Why are imports subtracted from GDP?
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What is the business cycle?
What is the business cycle?
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What defines a recession?
What defines a recession?
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What is an expansion?
What is an expansion?
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What happens to unemployment during a recession?
What happens to unemployment during a recession?
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Which measure compares living standards across countries?
Which measure compares living standards across countries?
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What does a peak represent in the business cycle?
What does a peak represent in the business cycle?
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Which factor increases long-run GDP growth?
Which factor increases long-run GDP growth?
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What happens if GDP grows faster than the population?
What happens if GDP grows faster than the population?
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What is inflation?
What is inflation?
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Study Notes
Measuring Economic Activity and GDP
- GDP measures the value of all goods and services produced within a country's borders.
- A new house built in the current year is included in GDP calculations.
- Consumption is typically the largest component of GDP in most countries.
- A company purchasing new machinery counts as investment in GDP accounting.
- Nominal GDP is GDP measured in current prices.
- Real GDP is adjusted to account for inflation.
- An increase in prices is indicated when nominal GDP grows but real GDP remains constant.
- Unpaid household production is not measured by a country’s GDP
- The income, expenditure, and production approaches can measure GDP
- Wages paid to government workers constitute government purchases in GDP.
- Exports increase GDP as they represent domestic production sold internationally.
- Imports are subtracted from GDP because they are foreign production
Bird’s Eye View of the Economy
- The business cycle involves short-term fluctuations in economic activity.
- A recession is generally defined as two or more consecutive quarters of declining GDP.
- During an expansion, GDP rises and unemployment falls.
- Unemployment typically rises during a recession
- Real GDP per capita is the statistic most often used to compare living standards across countries.
- A peak in the business cycle signifies the highest point of GDP before a downturn.
- GDP growth over the long term is boosted by improvements in technology.
- Living standards are improving if GDP grows faster than the population.
- Real GDP per capita increases when GDP growth outpaces population growth.
Measuring Price Level and Inflation
- Inflation means prices increase over a period of time
- The Consumer Price Index (CPI) is a common measure of inflation.
- The Consumer Price Index (CPI) tracks the price level of a fixed basket of goods and services.
- Deflation occurs when prices are falling.
- An increase in the CPI from 100 to 110 indicates an inflation rate of 10%.
- Unexpected inflation tends to negatively impact lenders.
- Real wages increase when wages rise at a faster rate than inflation.
- Borrowers benefit most when inflation is higher than expected.
- Inflation is likely to be caused by an increase in production costs.
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