Measuring GDP and Economic Growth

Flashcards based on Economics lecture notes to help students review key concepts and prepare for exams.

Gross Domestic Product (GDP)

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

Intermediate Good

An item that is produced by one firm, bought by another firm, and used as a component of a final good or service.

Factor Markets

Households sell and firms buy the services of labor, capital, and land.

Consumption Expenditure

Total payment for consumer goods and services.

Investment

The purchase of new plant, equipment, and buildings and the additions to inventories.

Government Expenditure

Government expenditure on goods and services.

Net Exports

The value of exports minus the value of imports.

Domestic Product

Production within a country.

National Product

The value of goods and services produced anywhere in the world by the residents of a nation.

Gross

Before deducting the depreciation of capital.

Net

After deducting the depreciation of capital.

Depreciation

The decrease in the value of a firm’s capital that results from wear and tear and obsolescence.

Gross Investment

The total amount spent on purchases of new capital and on replacing depreciated capital.

Net Investment

The increase in the value of the firm’s capital.

Expenditure Approach

Measures GDP as the sum of consumption expenditure, investment, government expenditure on goods and services, and net exports.

Income Approach

Measures GDP by summing the incomes that firms pay households for the factors of production they hire.

Compensation of Employees

Payments for labor services; the sum of net wages plus social security and pension fund contributions.

Net Operating Surplus

The sum of other factor incomes including net interest, rental income, corporate profits, and proprietor’s income.

Real GDP

The value of final goods and services produced in a given year when valued at the prices of a reference base year.

Nominal GDP

The value of goods and services produced during a given year valued at the prices that prevailed in that same year.

Real GDP per Person

Real GDP divided by the population.

Potential GDP

The value of real GDP when all the economy’s labor, capital, land, and entrepreneurial ability are fully employed.

Lucas Wedge

The dollar value of the accumulated gap between what real GDP per person would have been if the 1960s growth rate had persisted and what real GDP per person turned out to be.

Business Cycle

A periodic but irregular up-and-down movement of total production and other measures of economic activity.

Expansion

A period during which real GDP increases—from a trough to a peak.

Recession

A period during which real GDP decreases—its growth rate is negative for at least two successive quarters.