Measuring the Economy Using GDP ch 2

These flashcards cover key concepts related to Gross Domestic Product (GDP) and its measurement in economics.

What does GDP stand for?

Gross Domestic Product.

What does GDP measure?

The market value of all final goods and services produced within a country in a given year.

What is the circular flow diagram?

A model of the economy showing the link between households and businesses.

What is the equation for GDP based on spending?

Y = C + I + G + NX, where Y is GDP, C is consumption, I is investment, G is government purchases, and NX is net exports.

What does real GDP exclude?

The effects of price changes.

What is nominal GDP?

GDP measured in current prices.

What is one limitation of GDP regarding leisure?

GDP does not account for leisure time or the quality of life.

What must be included in GDP?

All goods and services produced within a country.

What does GDP not include in its measurements?

Nonmarket activities, such as household production.

How does GDP relate to total income?

GDP equals total income, which includes wages and profits.

What happens to GDP if the same goods are resold?

Resale of goods does not count in GDP.

How is GDP per capita calculated?

By dividing the GDP by the population of the country.

What is an example of a government purchase included in GDP?

Spending on public education or military.

What are intermediate goods?

Goods used as inputs in the production of other products.

What is GDP's relationship with environmental degradation?

GDP does not account for environmental degradation.

What does an increase in real GDP indicate?

A rise in standard of living due to increased production.

What is the Rule of 70 used for?

To estimate how long it takes for an amount to double given a certain growth rate.

What does the circular flow show about total output and total spending?

Total output must equal total spending.

How is GDP impacted by the shadow economy?

Some economic activities go unreported and are not included in GDP.

What is the significance of including all final goods in GDP?

To ensure that the value of goods doesn't get counted multiple times.