Gross Domestic Product (GDP)

Flashcards based on lecture notes about Gross Domestic Product (GDP)

Gross Domestic Product (GDP)

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

Market Prices in GDP

Goods are valued at their market prices, measured in the same units (e.g., dollars in the U.S.). Things without a market value are excluded.

Final Goods

Goods intended for the end user; only final goods are included in GDP to avoid double-counting intermediate goods.

Intermediate Goods

Goods used as components or ingredients in the production of other goods; their value is embodied in the final goods.

Tangible Goods in GDP

Physical items like DVDs, mountain bikes, and beer included in GDP.

Intangible Services in GDP

Non-physical services like dry cleaning, concerts, and cell phone service included in GDP.

GDP and Time

GDP includes currently produced goods, not goods produced in the past.

GDP and Location

GDP measures the value of production within a country’s borders, regardless of the citizenship of the producers.

GDP Period

GDP is usually measured over a year or a quarter (3 months).

Components of GDP

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

GDP Equation

Y = C + I + G + NX, where Y is GDP.

Consumption (C)

Total spending by households on goods and services.

Investment (I)

Total spending on goods that will be used in the future to produce more goods, including capital equipment, structures, and inventories.

Government Purchases (G)

All spending on goods and services purchased by the government at the federal, state, and local levels.

Net Exports (NX)

Exports minus imports (NX = exports – imports).

Exports

Represent foreign spending on the economy’s goods and services.

Imports

Represent spending on foreign goods and services.