Measuring the Economy’s Performance

These flashcards cover key concepts from the lecture on measuring the economy's performance with a focus on GDP and national income accounting.

What does GDP stand for?

Gross Domestic Product.

What is the circular flow of income?

A model showing how money moves through the economy, with goods and services flowing in one direction and money payments flowing in the other.

What does the expenditure approach measure?

It computes GDP by adding the dollar value of all final goods and services produced.

What does GDP exclude?

Nonmarket transactions.

What are final goods?

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

What is national income accounting?

A measurement system used to estimate national income and its components.

What are intermediate goods?

Goods used up entirely in the production of final goods.

What is the income approach to GDP?

Measuring GDP by adding all components of national income, including wages, interest, rent, and profits.

What is real GDP?

The measurement of GDP adjusted for changes in the price level.

What is nominal GDP?

The measurement of GDP in terms of current market prices or actual dollar values.

What is the difference between gross and net domestic product?

Gross includes total production; net adjusts for depreciation.

What is disposable personal income?

Personal income after personal income taxes have been paid.

Why must total output equal total income?

Every transaction involves both an expenditure and a business receipt.

What are the key components of national income?

National income, personal income, and disposable personal income.

What is purchasing power parity?

An adjustment in exchange rate conversions that accounts for differences in living costs.

What does GDP measure?

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

What is the purpose of GDP deflator?

To adjust nominal GDP for changes in the price index and measure real GDP.

What role do government expenditures play in GDP?

Government spending contributes to the total market value used in calculating GDP.

What is the concept of value added?

The dollar value of an industry's sales minus the costs of intermediate goods used in production.

What is gross output?

An alternative measure of GDP that includes all forms of business-to-business expenditures.

What is personal income?

The amount of income households actually receive before paying income taxes.

What does the term 'total income' refer to?

The yearly amount earned from the nation's factors of production.

What are some limitations of GDP?

It excludes nonmarket production and does not measure a nation's overall welfare.

Why is profit considered a cost of production?

Profits are the return to entrepreneurs for the risks of organizing productive activities.

What happens to GDP if people outsource household tasks?

Measured GDP would increase due to the dollar values assigned to those tasks.

What is the significance of real GDP per capita?

It measures the real GDP divided by the total population, indicating average economic performance.

What is the difference between durable and nondurable consumer goods?

Durable goods last more than three years; nondurable goods are used within three years.

What is included in gross private domestic investment?

The creation of capital goods, changes in inventories, and repairs made to machines and buildings.

What is an example of a financial transaction that is excluded from GDP?

Purchases of stocks and bonds.

What are implicit rental values?

Estimates of rental income from owner-occupied houses.

What influences GDP figures over time?

Inflation rates and changes in market prices.

What is the difference between factor markets and product markets?

Factor markets deal with buying resources; product markets involve buying goods.

What are indirect business taxes?

All business taxes except taxes on corporate profits.

What is the impact of statistical discrepancies on GDP?

They adjust discrepancies between GDP calculated through the income and expenditure approaches.

How do you calculate net exports?

Net exports = total exports minus total imports.

Why is the GDP of China considered smooth?

Concerns raised about the reliability of China's reported growth data.

What do behavioral economists study in relation to GDP?

They analyze subjective well-being measures alongside GDP.

Why isn't the GDP an adequate measure of economic well-being?

Because it does not account for quality of life or social factors.