Econ 104 Notes: GDP, Prices, and Inflation (Video)

Vocabulary flashcards covering GDP concepts, measurement methods, components, and key distinctions from the video notes.

Gross Domestic Product (GDP)

The market value of all final goods and services produced domestically in a year; measures production, expenditures, or income in an economy; equals GDP by Expenditure and GDP by Income (GDI); excludes household production and the underground market to avoid double counting.

Real GDP

GDP adjusted for inflation using base-year prices; reflects the true quantity of goods and services produced; growth in real GDP indicates actual growth after removing price changes.

Nominal GDP

GDP measured at current prices; can rise due to higher prices even if quantities produced stay the same.

Base year

The year whose prices are used to calculate real GDP; updated every 5–10 years to keep measurements current.

GDP by Expenditure

GDP = C + I + G + NX; C = consumption, I = investment, G = government purchases, NX = exports − imports.

Consumption (C)

Purchases of goods and services by households.

Investment (I)

Purchase of capital goods (K), change in inventories, or purchase of new housing; accounts for spending on items that will produce goods/services in the future.

Government purchases (G)

Spending by the government on goods and services; transfers are not included in G.

Net Exports (NX)

Exports minus Imports; NX can be negative if imports exceed exports.

Capital (K)

Capital goods—durable goods used in production and owned by businesses (e.g., machinery, wind turbines) that help produce goods and services over time.

Final goods

Goods meant for end use by the final consumer; counted in GDP to avoid double counting.

Intermediate goods

Goods used up or transformed into another good during production; not counted separately in GDP to avoid double counting.

Market value

The price at which an item is sold in the market; economists value items by market prices.

GDP by Income (GDI)

GDP measured by the total income earned by factors of production (wages, profits, rents, etc.); theoretically equal in value to GDP by Production and GDP by Expenditure.

Circular flow

The idea that GDP production equals GDP expenditures; money moves between households and firms as goods/services and payments circulate.

Household production

Goods and services produced by households for their own use; not counted in GDP.

Underground economy

Illegal or unreported production; not included in GDP.

Inventory investment

Changes in business inventories; part of I; can offset the difference between production and sales.

Why subtract imports?

Imports are subtracted because they are spending on foreign-produced goods; NX (exports − imports) reflects net exports and affects GDP.

GDP per capita

Real GDP divided by the population; a rough measure of average living standards or well-being.

Real GDP growth rate

The percentage change in real GDP from one period to the next; inflation-adjusted measure of economic growth.

Chained GDP

A method of calculating real GDP that uses updated weights over time to reduce bias from fixed base-year prices; commonly referred to as chained-dollar GDP.

Base-year vs current prices in real vs nominal GDP

Real GDP uses base-year prices to strip out inflation; Nominal GDP uses current prices, reflecting price level and production.

US 2025 notes (example values)

Illustrative values: Real GDP ≈ $23.7 trillion; GDP by Expenditures ≈ $30.3 trillion; Net exports share around −3% of GDP.