Macro Chapter 5-6

What is GDP?

total market value of all domestically made final goods and services produced legally and on the books within a specific period of time

What is the spending GDP equation

GDP = Consumption + Investment + Government Spending + (Exports - Imports)

What type of Variable is GDP?

GDP is a flow variable since its measurments are based off a period of time

What requirments must goods meet to count towards a nations GDP?

Domestically Producded, Final Goods, Official Legal Transactions, New Goods

What is a Domestically Producded good?

A good produced within a country, (a good sold in america but produced in china increases chinese GDP)

What are final goods?

A good that has reached the final stage of production, only final goods count toward GDP

What are intermediate inputs?

The materials required to make a final good, they do not count toward GDP

What are inputs of production?

The land, labour, and capital used to produce goods

What are new goods?

Goods that have not been counted toward GDP at any point, (Goods that are resold won't be counted in a years GDP)

What is consumption?

Private spending by residents on domestic goods and services

What is investment?

Spending by businesses and firms on capital goods, construction, and inventories

What are government expenditures?

Public spending on infrastructure, education, and defense

What is Net Exports?

Total Exports (goods sold to other countries) - Total Imports (goods bought from other countries)

What are some problems with GDP?

It strictly measures production, it does not accurately represent quality of life or long term economic health of a country

What are the 3 main ways of finding GDP?

By spending, by production, and by income

How to calculate GDP through spending?

Totaling specific expenditures in a country

How to calculate GDP through production?

Totalling goods produced within a country (must produce same answer as spending approach)

What are the 5 categories of goods produced?

Durable Goods, Nondurable Goods, Services, Structures, Inventories

How to calculate GDP through income?

Adding up all income in a country

Major forms of income used to calculate GDP

Wages and Salaries, Interest, Dividends, Rent, Profits

In U.S. who calculates GDP

Bureau of Economic Analysis

What does GNP stand for?

Gross National Product

How to find GNP?

Domestic Businesses + Labour Abroad - Foreign Bussiness & Labour within country

What is GNP?

Total of what a countries citizens and firms produce, no matter their location

What does NNP stand for?

Net National Product

What is NNP?

GNP - depreciation

What does GNI stand for?

Gross National Income

What is GNI?

All income generated by people from a country

What are the three ways GDP is reported?

Real GDP, Nominal GDP, Seasonally Adjusted GDP

What is real GDP?

GDP that has been adjusted for inflation

What is Nominal GDP?

GDP that has not been adjusted for inflation

What is seasonally adjusted GDP?

Removes predictable seasonal affects on GDP such as weather

What is a share of GDP?

The percentage that a certain economic variable makes up of the total GDP

What is real GDP used for?

To determine if the economy is growing or shrinking

What are sustained increases in GDP called?

Expansions

What are sustained decreases in GDP called?

Recessions

What is a GDP deflator?

An index that shows change in cost of goods and services in comparison to a base year

What is the GDP deflator equation?

GDP deflator = Nominal GDP/Real GDP * 100

What does a GDP deflator of more than 100 indicate?

Inflation

What does a GDP deflator of less than 100 indicate?

Deflation

What is the fromula for converting nominal GDP to real GDP

Real GDP = Nominal GDP/GDP Deflator * 100

What is the base year in terms of GDP

The year which you compare other years to

What is the value of a base year

100

Before the base year what is higher real GDP or nominal GDP

real GDP

After the base year what is higher real GDP or nominal GDP

nominal GDP

How to use GDP to compare economic welfare between countries

Convert GDP to common currency, Account for differences in population

What are market exchange rates?

Rates that vary day to day depending on supply and demand in foreign markets

What is purchasing power parity (PPP)

A way of comparing values of currencies depending on what they can buy

What are purchasing power exchange rates used for?

To provide a long run measure of the exchange rate

What is the formula for converting to a common currency?

GDP in foreign currency / exchange rates

What does GDP per capita measure?

It measures GDP relative to the size of a countries population

How to calculate GDP per capita?

GDP / population