economics measuring national income

What is national income a basis for?

Judging the economy.

What does GDP reflect?

The country's national income.

What two aspects does GDP measure simultaneously?

The total income of everyone in the economy and the total expenditure on the economy's output of goods and services.

In the context of an economy, what must income equal?

Expenditure.

What is Gross Domestic Product (GDP)?

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

What does GDP use to measure the value of economic activity?

Market prices.

Why does GDP include only final goods and services?

To avoid double counting, as intermediate goods are already included in the prices of final goods.

What geographical area does GDP cover?

Goods and services produced within the geographic confines of a country.

What time frame does GDP measure production?

Within a specific interval of time, typically a year or a quarter.

What are the four components of GDP?

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

What does consumption include?

Spending by households on goods and services, excluding new housing.

What types of goods are included in consumption?

Durable goods (e.g., automobiles) and nondurable goods (e.g., food).

What is investment in the context of GDP?

The purchase of goods that will be used in the future to produce more goods and services.

What does government purchases encompass?

Spending on goods and services by local, state, and federal governments, including salaries of government workers.

What are transfer payments, and how do they relate to GDP?

Payments like Social Security benefits that alter household income but are not counted as part of government purchases.

How are net exports calculated?

By subtracting imports from exports.

What is the difference between Real GDP and Nominal GDP?

Real GDP values goods and services at prices from a specific past year, while Nominal GDP uses current prices.

What does the GDP deflator measure?

The price level calculated as the ratio of nominal GDP to real GDP times 100.

How is the inflation rate calculated using the GDP deflator?

As the percentage change in price level from one period to the next.

What does Real GDP reflect?

Only the quantities of goods and services produced, holding prices constant at base-year levels.

What does Nominal GDP reflect?

Both the quantities of goods and services produced and the prices of those goods and services.

What is included in the investment component of GDP?

Purchases of capital equipment, inventories, structures, and new housing.

What is the significance of the circular flow of income in economics?

It illustrates the relationship between income and expenditure in an economy.

What is the formula for GDP?

Y = C + I + G + NX.