Chapter 6 [Measuring Macroeconomic Outcomes]

Define gross domestic product (GDP). Does it include intermediate goods?

• The total market value of all final goods and services produced within a society over a certain period of time.

• It does not include intermediate goods.

What are the four elements of GDP? Give its equation.

• Consumption — purchases of newly produced goods and services by households.

• Private Investment Expenditures — purchases of newly produced goods and services by firms.

• Government Purchases — purchases of newly produced goods and services by local, state, or federal government.

• Net Exports — exports minus imports.

• Y = C + I + G + NX

Define exports and imports. Define a trade deficit and a trade surplus.

• Exports — a good or service produced in a home country and sold to someone in a foreign country.

• Imports — a good or service produced in a foreign country and purchased by someone in a home country.

• A trade deficit is an excess of imports over exports; a trade surplus is an excess of exports over imports.

Differentiate nominal GDP and real GDP.

• Nominal GDP is the value of GDP computed using current prices.

• Real GDP is the value of GDP computed using prices from an arbitrary base year and holding it equal across the years.

Define real GDP per capita.

• The value of real GDP divided by total population.

Differentiate IACs from LDCs

• IACs (Industrially Advanced Countries) are high-income countries with primarily market-based economies, large stocks of technologically advanced industrial capital, and a highly educated and skilled workforce.

• LDCs (Less Developed Countries) are lower-income countries which are primarily held back by some combination of poor economic institutions, undeveloped industrial capital, and/or an uneducated and unskilled workforce.

Define inflation and unemployment.

• Inflation measures increases in price.

• Unemployment measures how many people don’t have jobs.

Define inflation rate, deflation, and hyperinflation.

• The rate at which the overall price level increases on an annual basis.

• Deflation is a general decrease in the level of overall price, i.e. a realization of a negative inflation rate.

• Hyperinflation is an extremely high rate of inflation, generally above 100% per year.

Define unemployment rate and the labor force.

• The unemployment rate is the percentage of the labor force that is currently unemployed.

• The labor force is a body of individuals who either currently have a job or do not have a job but are actively seeking one.

Define the misery index.

• An economic indicator calculated by adding annual inflation rate and unemployment rate.