module 20 - GDP

gross domestic production (gdp)

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

• value of all final goods and services produced within a country in a given period of time

circular flow diagram

model illustrating that for an economy as whole, income must equal expenditure

market value

gdp uses market prices to reflect the value of goods and services

final goods

goods intended for the end user, whose value aleady includes the value of intermediate goods

intermediate goods

components used in the production of other goods

consumption (c)

spending by households on goods and services, excluding purchases of new housing

government purchases (g)

spending on goods and services by local, state, and federal governments, which does not include transfer payments

investment (I)

spending on capital equipment, inventories, and structures, including household purchases of new housing and inventory accumulation

net exports (nx)

exports minus imports

• exports = spending on domestically produced goods by foreigners

• imports = spending on foreign goods by domestic residents

y =

c + i + g + nx

nominal gdp

the production of goods and services valued at current prices; it is not corrected for inflation

real gdp

the production of goods and services at constant prices, sing a designated base year; it is not affected by changed in prices and is corrected for inflation

base year

designated for valuing goods and services at constant prices when calculating real gdp. in the base year, nominal gdp equals real gdp

gdp deflator

a measure of the current level of prices relative to the level of prices in the base year, calculated as (nominal/real gdp) (100)

inflation

where an economy’s overall price level is rising

inflation rate

percentage change in some measures of the price level from one period to the next

recession

a period characterized by two consecutive quarters of falling gdp, declining real gdp, lower income, rising unemployment, falling profits, and increased bankruptcies

gross national product (gnp)

the market value of all final goods and services produced by a country’s residents, regardless of where they are located