Chapter 06: Gross Domestic Product

Flashcards designed to review key concepts and calculations related to Gross Domestic Product (GDP) from the lecture notes.

What are the three ways of computing GDP?

Expenditures approach, income approach, and value-added approach.

What is the difference between real GDP and nominal GDP?

Real GDP is adjusted for inflation, while nominal GDP is based on current prices.

How do you calculate the GDP deflator?

The GDP deflator is calculated by dividing nominal GDP by real GDP and then multiplying by 100.

What is the main limitation of GDP as a measure of quality of living?

GDP does not account for the distribution of income, environmental factors, or unpaid work.

What does the value-added approach to GDP measure?

It calculates GDP by summing the additional value created at each stage of production.

What is included in the consumption component of GDP?

Household purchases of final goods and services, except for new residences.

What constitutes government purchases in GDP calculations?

Spending for goods and services by all levels of government, minus transfer payments.

What are net exports?

The value of a country's exports minus the value of its imports.

What is aggregate expenditure?

Total spending on final goods and services in an economy during a given period.

What is meant by leakages in the circular flow of income?

Leakages refer to any diversion of income from the domestic spending stream, including saving, taxes, and imports.