2._Measuring_Domestic_Output_and_National_Income__1_

Gross Domestic Product (GDP)

The primary measure of the economy’s performance, indicating the total output of goods and services produced annually.

Nominal GDP

Gross Domestic Product that has not been adjusted for inflation; reflects the market value of goods and services at current prices.

Real GDP

Gross Domestic Product that has been adjusted for changes in price levels; reflects the true output of an economy without inflation distortions.

Production Approach

A method to measure GDP that sums the value added at each stage of production.

Expenditure Approach

A method of calculating GDP by adding up total expenditures on final goods and services during a specific period.

Income Approach

A method of measuring GDP by summing all incomes earned by factors of production in the economy.

Nonproduction Transactions

Economic transactions that do not involve the production of goods and services, such as financial transactions or secondhand sales, which are excluded from GDP.

Multiple Counting

The erroneous practice of counting the same output multiple times when measuring GDP; avoided by only counting the value of final goods.

Value Added

The difference between a firm's sales revenue and the cost of inputs it purchased from other firms; crucial for calculating GDP.

Gross National Income (GNI)

A measure of income that includes GDP plus net income received from abroad, accounting for incomes earned by residents and paid to foreigners.

Net National Income (NNI)

The total income of a nation's residents after accounting for depreciation of capital; calculated as GNI minus depreciation.

Households' Disposable Income

The income available to households for spending or saving after taxes and other deductions have been made.

Aggregate Demand (AD)

The total demand for goods and services within the economy at a given overall price level and in a given time period.

Aggregate Supply (AS)

The total supply of goods and services that firms in an economy plan on selling during a specific time period.

Shortcomings of GDP

Limitations of GDP as a measure of overall well-being, such as non-market activities, improvements in product quality, and the underground economy.

Consumer Price Index (CPI)

An index that measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.