Gross Domestic Product and Economic Performance

A set of 30 vocabulary flashcards covering the key concepts, metrics, formulas, and limitations of Gross Domestic Product (GDP) based on the lecture transcript.

Gross Domestic Product (GDP)

The market value of all finished goods and services produced within a country in a year.

GDP per capita

A measure of economic output per person, calculated as $\text{GDP} \div \text{population}$.

Market Value

The total monetary value used to measure production in GDP, calculated as $\text{Price} \times \text{Quantity} = \text{Market Value}$.

Finished Goods

Final products counted in GDP to prevent double counting, excluding intermediate inputs used in their creation.

Intermediate Goods

Inputs used inside finished products, such as a computer chip inside a computer, that are not counted separately in GDP.

Services

Intangible economic activities such as healthcare, transportation, haircuts, streaming, and legal work, which account for about $80\%$ of U.S. GDP.

Financial Assets

Items like stocks and bonds that represent financial transactions rather than production, and are therefore excluded from GDP.

Realtor's Commission

An example of a newly produced service associated with the transaction of an old house that counts toward GDP.

GNP (Gross National Product)

The total production by a country's residents regardless of location (representing "WHO"), in contrast to GDP which measures production location ("WHERE").

National Wealth

The total value of accumulated assets owned, which differs from GDP because GDP measures annual output or income.

Bureau of Economic Analysis (BEA)

The official agency that calculates U.S. GDP on a quarterly basis.

GDP Growth Rate

The percentage change in GDP from one year to the next, calculated using the formula $\frac{\text{New GDP} - \text{Old GDP}}{\text{Old GDP}} \times 100$.

Nominal GDP

GDP measured using current-year prices without adjusting for inflation, changing due to both price movements and actual production changes.

Real GDP

GDP adjusted for inflation by using constant prices across years to reflect actual changes in economic output.

GDP Deflator

A price index measuring overall price level changes and inflation, calculated as $\left(\frac{\text{Nominal GDP}}{\text{Real GDP}}\right) \times 100$.

Average U.S. Real GDP Growth

The long-term average annual growth rate of real GDP in the United States, which is approximately $3.15\%$ per year.

Real GDP Per Capita

Real GDP divided by population, typically growing at approximately $2.1\%$ per year in the U.S., and serving as the best GDP-based measure of living standards.

Recession

A significant, widespread decline in real income/GDP, employment, production, and sales across an economy.

NBER

The National Bureau of Economic Research, the organization that officially identifies and dates U.S. recessions.

Expansion

A phase of the business cycle, also known as a boom, where real GDP grows faster than normal.

Business Cycles

Short-run fluctuations of real GDP around its long-term growth trend, including $12$ recessions in the U.S. since $1948$.

National Spending Approach

A method of measuring GDP by adding expenditure components, expressed by the equation $\text{GDP} = C + I + G + NX$.

Consumption (C)

Private spending on finished goods and services including healthcare and education, representing the largest and most stable spending component of GDP.

Investment (I)

Spending on capital used for future production (equipment, factories, new homes, and inventories), excluding financial assets like stocks.

Government Purchases (G)

Government spending on goods and services, excluding transfer payments such as Social Security and welfare.

Net Exports (NX)

Exports minus imports ($\text{Exports} - \text{Imports}$), where imports are subtracted as an accounting adjustment because they were produced abroad.

Factor Income Approach

A method of measuring GDP by summing total income earned, represented as $\text{GDP} = \text{Employee Compensation} + \text{Rent} + \text{Interest} + \text{Profit}$.

Employee Compensation

Total wages and benefits paid to workers, forming the largest share of GDP in the factor income approach at approximately $54\%$.

Underground Economy

Illegal and off-the-books transactions omitted from GDP, which can make countries with large informal sectors appear poorer than they are.

Green Accounting

An accounting approach that attempts to incorporate environmental costs, pollution, and resource depletion into national economic metrics.