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Gross Domestic Product
The market value of all final goods and services produced in a country during a period of time
Market Value
Value each good and service in monetary terms
Market Value Formula
Use prices of goods or services x quantity of goods or services = market value
Final Goods and Services
Goods and services produced by a final user
Intermediate Goods and Services
Used up in the production of final goods
Produced in a Country (Domestic)
GDP measures output produced within a country’s borders
During a Period of Time
Measure goods and services produced only in that given year
What does GDP measure?
Measures total production and well-being
The Expenditure Method
Adds up all spending on domestically produced final goods and services in a year
Consumption
Spending my households for finals goods and services
Consumer Durables
Long-lived consumer goods
Consumer Non-Durables
Shorter-lived consumer goods
Services
Largest component of consumer spending
Economic Growth
The ability of an economy to produce increasing amounts of goods and services
Economic Growth Formula
An economy’s ability to produce increasing amounts of goods and services
Potential GDP
An estimate of GDP that the economy would have produced if all factors of production were fully employed
Actual/Real GDP
Value of final goods and services evaluated at base-year prices
Nominal GDP
Market value of final goods and services evaluated at current-year prices
Business Cycle
Alternating periods of economic expression and economic recession
Recession
Total production and total employment are decreasing and real GDP falls
Expansion
The economy is recovering from recession and real GDP starts to rise again
GDP Formula
GDP = Price x Quantity
Real GDP Formula
Price Base Year x Quantity Current Year
Nominal GDP Formula
Price Current Year x Quantity Current Year
Output Gap Formula
Actual GDP - Potential GDP / Potential GDP x 100
Output Gap
Difference between Actual GDP and Potential GDP
Positive Output Gap
Actual GDP > Potential GDP
Negative Output Gap
Actual GDP < Potential GDP
Investment
Inventory Investment
The change in unsold goods to the company’s inventory
Residential Investment
Construction of new homes and apartment buildings
Financial Investment
Purchases of stocks, bonds, and other financial assets
Gross
Total value of something without subtracting any deductions or deprication
Government Purchases
Final goods and services bought by federal, state, and local governments
Government Consumption
Teacher’ salaries and office supplies
Government Investment
Highways and military bases
Transfer Payments
Transfers of income from one group to another
Net Exports
Exports - Imports
Exports
Goods and services produced domestically and sold abroad
Imports
Purchases in the US of goods and services produced abroad
