GDP Overview and Calculations

Flashcards covering key vocabulary and concepts related to GDP, its calculation, and alternative measures of well-being from lecture notes.

GDP

Total output of an economy in a year, measured in local currency or USD.

GDP Importance

Informs economic policy, helps determine size and importance compared to other countries, and helps to predict or interpret growth rate in the past and future.

GDP (Total Market Value)

Total market value of all newly produced goods and services in a specified country during a year.

Final Goods

Only these goods are measured in GDP calculations, not intermediate goods.

Informal Sector

Transactions and activities not counted in GDP, such as babysitting or mowing lawns for neighbors.

Domestic Labour

Chores for money that are not counted in GDP due to difficulty in recording.

Production Method (GDP)

Adding all added values of all domestic products at each step of production. It is always the difference between values at each step in production.

Income Method (GDP)

Adding up all incomes generated by all domestic production (wages, dividends).

Expenditure Method (GDP)

All spending spent on domestically produced final goods and services. Final values are only taken into account to avoid double counting.

GDP Categories

Consumption, Investment, Government Purchases, and Net Exports (Y = C + I + G + NX).

Consumption (GDP)

Newly produced goods and services purchased by households.

Investment (GDP)

Spending by businesses on goods to help them create new products or services (new machines, factories, or inventory) and new residential houses.

Government Purchases (GDP)

Consumption and investment by the government (spending on public hospitals, schools, and roads). Excludes transfer payments like unemployment benefits and pensions.

Net Exports (GDP)

Goods and services produced domestically but consumed abroad (exports) minus goods and services produced abroad but consumed domestically (imports).

Nominal GDP

GDP measured based on current year prices.

Real GDP

GDP measured based on base year prices, which tells us the level of output without change in prices over time.

GDP Deflator

Ratio of two price levels, indicating the change in price level over time. It is a unitless measurement.

Purchasing Power Parity (PPP)

Adjusted GDP in accordance with cost of living. Services should cost the same in another country when expressed with the same currency.

GDP per capita

Overall GDP divided by the number of people. It is used as a proxy of material wellbeing.

Gross National Happiness (GNH)

An alternative to GDP per capita that considers income, sustainable development, and work/life balance.