Chapter 11 Measuring the size of the economy Part 2

Flashcards covering the components and measurements of GDP from Chapter 11 lecture notes.

What does GDP exclude?

GDP excludes most items produced and consumed at home that never enter the marketplace, as well as items produced and sold illicitly, such as illegal drugs.

How often does the Australian Bureau of Statistics (ABS) calculate the nation's GDP?

Every 3 months.

What are the three approaches the Australian Bureau of Statistics (ABS) uses to calculate GDP?

Production approach, income approach, and expenditure approach.

How is the final GDP figure determined by the Australian Bureau of Statistics (ABS)?

An average of the three approaches (production, income, and expenditure) is calculated and referred to as GDP.

What is the expenditure approach to measuring GDP?

It adds all spending for final goods during a period of time.

What is the income approach to measuring GDP?

It adds the incomes of all factors of production.

What is the formula for calculating GDP using the expenditure approach?

GDP = C + I + G + (X–M)

What is the formula for calculating GDP using the income approach?

GDP = wages + rent + interest + profits

What do C, I, G, and (X-M) represent in the expenditure approach to calculating GDP?

C = Personal Consumption Expenditure, I = Gross Private Domestic Investment, G = Government Purchases, (X-M) = Net Exports

How is Net Exports (X) calculated?

Net Exports (X) = Exports (X) - Imports (M)

What is the largest component of GDP?

Household consumption expenditures (C), about 60% of GDP

What makes up household consumption expenditures (GDPC)?

Spending on services, durable goods, and non-durable goods.

Give examples of durable goods.

Clothing & footwear, Furnishings & household equipment, Purchases of vehicles

Give examples of non-durable goods.

Food, Cigarettes & tobacco, Alcoholic beverages

Give examples of services.

Electricity, gas & other fuels, Rent & other dwelling services, Health

How do expenditures on durables behave during boom periods?

Expenditures on durables often increase dramatically.

How do sales of durable goods behave during years of stagnant or falling GDP?

Sales of durable goods often plummet.

Why are sales of non-durables more stable?

Purchases of such goods are more difficult to shift from one time period to another.

What does Gross Private Domestic Investment (GPDI) represent?

Spending that maintains or increases the stock of capital equipment in the economy.

What is Gross Private Domestic Investment (GPDI) the sum of?

Fixed investment for newly produced capital goods and changes in business inventories (unsold finished goods and raw materials).

What are fixed investments sometimes called?

Producer goods

What does fixed investments include?

all spending on capital goods that increase our future production capabilities: machinery, tools, factory buildings, and residential construction.

What does inventory investment include?

all businesses purchases that add to inventories to meet customer demands

How is expenditure on new housing classified?

As investment, as it provides services over time into the future.

In economics, what does 'investment' refer to?

Spending on physical products that are intended to be used as inputs in the production process.

How high have investment expenditures been as a percentage of gross domestic product in recent years?

As high as 18 percent.

How volatile is investment spending?

It is the most volatile category of GDP and tends to fluctuate considerably with changing business conditions.

What does government consumption & gross public investment expenditures (G) include?

Includes government spending on current goods (salaries of workers and the inputs it consumes) and spending on investment goods (infrastructure) such as highways, buildings, and bridges.

What is NOT included in government consumption & gross public investment expenditures (G)

Transfer payments from one level of government to another.

What are exports (X)?

Expenditures by foreigners on domestically produced goods and services.

What are imports (M)?

The dollar amount of a nation’s purchases from producers in other countries.

What does the expenditure approach GDP calculations measure with respect to exports and imports?

Net exports, which equals total exports (X) minus total imports (M).

How significant are net exports as a proportion of GDP?

Net exports are a small proportion of GDP and are often negative.

What ultimately purchases all productions in the Australian economy?

Spending from households, businesses, government, or foreigners.