Gross Domestic Product (GDP) Overview

These flashcards cover key concepts related to Gross Domestic Product (GDP), its components, implications, and critiques.

What is Gross Domestic Product (GDP)?

GDP measures the market value of all final goods and services produced within a country in a given period of time.

How is GDP related to a nation’s total income and spending?

GDP measures total income of everyone in the economy and total expenditure on the economy's output of goods and services. Income equals expenditure.

What are the components of GDP?

The four components of GDP are Consumption (C), Investment (I), Government Purchases (G), and Net Exports (NX).

How is GDP corrected for inflation?

GDP is corrected for inflation by using Real GDP, which values output using the prices of a base year, as opposed to Nominal GDP which uses current prices.

Does GDP measure society’s well-being?

While GDP is a main indicator of economic well-being, it is not a perfect measure and does not account for factors like health, education quality, and leisure time.

What are the two types of GDP?

Nominal GDP measures output using current prices and is not corrected for inflation. Real GDP measures output using prices from a base year and is corrected for inflation.

What does the GDP deflator measure?

The GDP deflator measures the overall level of prices, comparing the current level of prices to the level of prices in the base year.

What is the formula for calculating GDP?

GDP is calculated as 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 factors does GDP exclude?

GDP excludes non-market activities like household work, the quality of the environment, leisure time, and equitable income distribution.

Why is GDP important?

Having a large GDP enables a country to afford better schools, a cleaner environment, and healthcare; many indicators of quality of life are positively correlated with GDP.