ECON 162 - Chapter 5

What is a final good/product? How does it affect GDP?

A final good is a good that is directly sold to consumers/customers. If a company produces and sells more of a good directly to consumers, then GDP increases. If a company produced and sells less of a good to consumers, then GDP decreases

What is an intermediate good/product? How does it affect GDP?

An intermediate good is a good that is used to make/produce other goods. It does not affect GDP to avoid double counting

What increases GDP

• More final goods are produced and sold (If a company produces and sells more of a good directly to consumers)

• Spending money on goods and/or services

• When goods become legal

What decreases GDP

• Less final goods are produced and sold (If a company produces and sells less of a good directly to consumers)

• Buying less of a good or service or completely stop buying a good or service

• When goods become illegal

What does not affect GDP

• Receiving goods and/or services for free from family members and friends

• Increase or decrease of a good that is used to make/produce other goods (intermediate goods)

• Increase or decrease of stock market

Calculate GDP using final goods approach

GDP is $2000 because that is how much the cookies sold to final consumers

Calculate GDP using value-added approach

What is the formula to find GDP (Gross Domestic Product) using the expenditure approach? Determine what each variable means

What is the formula to find GNP (Gross National Product)? Determine what each variable means

What is the formula to find NNP (Net National Product)? Determine what each variable means

What is the formula to find NI (National Income) using the expenditure approach? Determine what each variable means

What is the formula to find NI (National Income) using the income approach? Determine what each variable means

What is the formula to SD (Statistical Discrepancy)? Determine what each variable means

Draw the Circular Flow Model

What are the 4 ways of measuring GDP

1. Value of Final Output

2. Expenditures

3. Sources of Income/ Income Approach

4. Uses of Income

How does real GDP measure output? How is it affected by inflation and why?

• Real GDP measures output using base year prices

• It is not affected by inflation because it already adjusts for inflation

How does nominal GDP measure output? How is it affected by inflation?

• Real GDP measures output using current prices

• It increases because of inflation since it does not adjust for inflation

When are nominal GDP and real GDP equal?

In the base year

What does GDP and GNP account for?

• GDP only counts the value of final goods and services that are produced within a country's borders, regardless of where the people producing them are actually from.

• GNP only counts the value of final goods and services that are produced by a country's residents, regardless of which country the production actually occurs