Measuring the Economy's Performance (Vocabulary Flashcards)

Vocabulary flashcards covering key GDP concepts, measurement methods, and related terms from the lecture notes.

GDP

The total market value of all final goods and services produced within a nation's borders in a given period.

Final goods and services

Goods and services that are at the final stage of production and will not be transformed into other goods.

Intermediate goods

Goods used up entirely in producing final goods; not counted separately to avoid double counting.

Financial transactions excluded

Stocks, bonds, and other financial transfers that do not involve current production and are not counted in GDP.

Transfer payments excluded

Government or private payments (e.g., Social Security, unemployment benefits) not for goods/services and not counted in GDP.

Secondhand goods excluded

Sales of used goods are not included because they do not reflect current production.

Non-market production

Household and other non-market activities not bought/sold in markets; not included in GDP.

GDP limitations

GDP excludes non-market factors, leisure, safety, and pollution; not a complete measure of welfare.

GDP deflator

A price index used to convert nominal GDP to real GDP, reflecting price level changes.

Price level

A measure of the average prices of goods/services; used in price indices like the GDP deflator.

Real GDP

GDP measured using base-year prices, adjusted for inflation; expressed in constant dollars.

Nominal GDP

GDP measured at current market prices, not adjusted for inflation.

Price index

A ratio (cost today of a market basket divided by cost in base year) x 100 that tracks price changes.

Simple circular flow

Model showing money and goods flow in opposite directions between households and firms; total income equals total expenditure.

Product markets

Markets where households buy final goods and services; value of output equals total monetary value of those goods.

Factor markets

Markets where firms hire resources (labor, land, capital, entrepreneurship) from households; total income equals wages, rents, interest, profits.

Expenditure approach

GDP measured by summing expenditures on final goods and services: GDP = C + I + G + X.

Consumption (C)

Expenditures by households on goods and services; largest component of GDP.

Investment (I)

Expenditures on capital goods and changes in inventories; future production supported.

Government expenditures (G)

Government spending on goods and services; valued at cost.

Net exports (X)

Exports minus imports; component of GDP in the expenditure approach.

GDP equation (expenditure approach)

GDP equals C + I + G + X, where X is net exports.

Income approach / GDI

GDP measured by summing incomes: wages, rents, interest, and profits.

Gross Domestic Income (GDI)

Sum of wages, rents, interest, and profits paid to the four factors of production.

Indirect taxes

Taxes on production (e.g., sales tax) and business property taxes; included in GDP after adjustments.

Depreciation

The cost of using a fixed asset; part of the adjustments to convert GDI to GDP.

Per capita GDP

GDP divided by population; measures average economic output per person.

Purchasing Power Parity (PPP)

Adjustments in exchange rates to account for differences in cost of living across countries.

Foreign exchange rate

The price of one currency in terms of another.