Ch 24 Measuring a Nations Income 10e

Gross Domestic Product (GDP)

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

Microeconomics

The study of how households and firms make decisions and interact in markets.

Macroeconomics

The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Income and Expenditure

In an economy, total income equals total expenditure; every dollar spent by a buyer is income for a seller.

The Circular-Flow Diagram

A simple depiction of the macroeconomy illustrating GDP as spending, revenue, factor payments, and income.

Final Goods

Goods that are intended for the end user.

Intermediate Goods

Goods used as components or ingredients in the production of other goods.

Real GDP

The production of goods and services valued at constant prices; corrected for inflation.

Nominal GDP

The production of goods and services valued at current prices; not corrected for inflation.

GDP Deflator

A measure of the price level calculated as GDP deflator = 100 × (Nominal GDP / Real GDP).

GDP Components

GDP is composed of four components: Consumption (C), Investment (I), Government Purchases (G), and Net Exports (NX).

Consumption (C)

Spending by households on durable goods, nondurable goods, and services; excludes purchases of new housing.

Investment (I)

Spending on goods that will be used to produce more goods in the future.

Government Purchases (G)

Spending by the government on goods and services but excludes transfer payments.

Net Exports (NX)

Exports - imports; foreign spending on the economy’s goods and services.

Inflation

A general increase in prices and fall in the purchasing value of money.

Economic Well-Being

Measured primarily by real GDP per capita, but not a perfect measure of overall well-being.

Limitations of GDP

GDP does not account for environmental quality, leisure time, non-market activities, and income distribution.

GDP Equation

GDP = C + I + G + NX, where C is Consumption, I is Investment, G is Government Purchases, and NX is Net Exports.

Net Exports (NX) Equation

NX = Exports - Imports, representing the value of a country's exported goods and services minus the value of imported goods and services.