Chapter 22 GDP and CPI Macroeconomics

Gross Domestic Product (GDP)

The total value of all final goods and services produced in an economy in a given period.

Real GDP

GDP adjusted for inflation; reflects the actual growth in an economy.

Nominal GDP

GDP measured at current prices, not adjusted for inflation.

Consumer Price Index (CPI)

A measure that examines the average change over time in the prices paid by consumers for a market basket of goods and services.

Inflation Rate

The percentage change in the price index over a given period.

Final Goods and Services

Goods and services purchased for final use, not to be resold or used in production.

Intermediate Goods and Services

Goods and services used to produce a product or service for the final consumer.

Aggregate Spending

The total flow of funds into the market for goods and services in an economy.

GDP Deflator

Nominal GDP for a given year divided by Real GDP for that year, multiplied by 100.

Price Index

A measure that compares the current cost of a market basket of goods to the cost of the same basket in a base year.

Exports

Goods and services sold by a country to external markets.

Imports

Goods and services purchased from foreign countries.

Government Purchases

Spending by the government for the purchase and use of goods and services.

Investment Spending

Spending by firms for capital goods with a life of over one year.

Transfer Payments

Payments made by the government to individuals such as Social Security, not in exchange for goods or services.

GDP: Aggregate Spending

GDP = C + I + G + X - M

GDP: Total Value of Production

Add up the factor income (wages, profits, interest, rent)

Price Index

(Cost of market basket in base year Cost / of market basket in a given year​) ×100

Inflation Rate

(Price index in year 1 / Price index in year 2−Price index in year 1​) ×100