GDP

What does Gross Domestic Product (GDP) measure?

GDP measures the total production of a country.

Define Gross Domestic Product (GDP).

The market value of all final goods and services produced in a country during a period of time, typically one year.

GDP includes only the market value of __________ goods.

final

What is a final good or service?

A good or service purchased by a final user.

What is an intermediate good or service?

A good or service that is an input into another good or service.

GDP includes only __________ production.

current

How can GDP be measured?

By the value of total production or the value of total income.

What are factors of production?

Labor, capital, natural resources, and entrepreneurship used to produce goods and services.

Households supply factors of production in exchange for __________.

income

What are the components included in measuring GDP by the value-added method?

The difference between the selling price of a product and the price paid for intermediate goods.

How is GDP measured by expenditures?

By summing expenditures by households, government, exports, and subtracting imports.

What are the four major categories of expenditures measured by the BEA?

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

The formula for GDP is _________.

Y = C + I + G + NX

What type of spending does consumption (C) refer to?

Spending by households on goods and services.

Investment (I) includes spending by firms on _________.

New factories, office buildings, and new houses.

Government purchases do not include __________ payments.

transfer

What do net exports (NX) measure?

The value of exports minus the value of imports.

GDP does not measure production occurring in __________.

Households

What is the underground economy?

Buying and selling of goods and services concealed from the government for tax avoidance.

GDP per capita is often used to represent __________ differences.

standards of living

GDP fails to account for the value of __________.

leisure

What is Gross National Product (GNP)?

Production performed by citizens of a nation, including overseas production.

Nominal GDP is the sum of the __________ values of all final goods and services.

current

What does Real GDP measure?

The volume of final goods and services produced, evaluated at base year prices.

What is the price level?

A measure of the average prices of goods and services in the economy.

The GDP deflator is calculated by dividing ________ by real GDP.

nominal GDP

What are the components of personal income?

Income received by households, including transfer payments but excluding retained earnings.

Disposable personal income is personal income minus ________ payments.

personal tax

What does the Bureau of Economic Analysis (BEA) publish quarterly?

National Income and Product Account tables.

Define nominal GDP.

The value of final goods and services evaluated at current year prices.

Real GDP is adjusted for __________ changes.

price

What is a shortcoming of GDP as a measure of wellbeing?

It does not account for the distribution of income.

What do expenditures by domestic households include in GDP?

Spending on goods and services.

What is business fixed investment?

Investment in new factories, office buildings, and machinery.

What kind of investments does residential investment refer to?

New single-family and multi-family unit houses.

Why are imports subtracted from GDP?

To count only domestic production.

What are the two types of goods classified under consumption?

Durable goods and nondurable goods.

What did transfers not lead to in government purchases?

Immediate production of goods and services.

When did net exports turn negative for the US?

In recent years.

How does GDP measure income?

As the sum of wages, interest, profits, and rent.

How is the value added method related to GDP?

It calculates the additional market value given by firms to products.

What does personal consumption expenditures measure?

Household spending on goods and services.

Environmental impacts are often not reflected in __________.

GDP

What does GDP not factor in regarding health?

The benefits of unpaid labor.

GDP per capita can be misleading for understanding __________.

Living standards.

What is a transfer payment?

Payments made by the government without the provision of goods or services.

How does GDP relate to economic growth?

GDP growth indicates an increase in the market value of goods and services.

When comparing GDP between countries, it's useful to consider __________.

GDP per capita.

What economic measure adjusts nominal GDP for inflation?

Real GDP.

What factors contribute to the underground economy?

Tax avoidance and illegal transactions.

What services does government spending typically include?

Salaries, infrastructure, and public services.

What is a major flaw in GDP calculations?

It does not account for the value of non-market transactions.

Define the term 'disposable personal income'.

The amount households have available for spending or saving after taxes.

What measures the average price changes in the economy?

The GDP deflator or Consumer Price Index (CPI).

Investment includes both residential and _________ investment.

business fixed

Why are consumer services particularly significant in GDP calculations?

Because consumer spending on services is greater than on durable and nondurable goods.

What reflects the economic health of a nation better than nominal GDP?

Real GDP, as it accounts for inflation.

What is the relationship between GDP and imports/exports?

GDP counts domestic production, hence imports are subtracted and exports are added.