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Gross Domestic Product
The sum of the market values of all final goods and services produced within a country in a given period of time
Four important pieces of the definition of GDP:
The market value
Final goods and services
Produced within a country
The given period of time
Gross National Product (GNP)
The sum of the market values of all final goods and services produced by a country’s businesses within a given period of time
How does GDP differ from GNP?
GNP includes the worldwide value of all final goods and services produced y a country’s businesses
GNP excludes production by foreign businesses within the country
National production Equation
National production= National expenditure = National income
Expenditure approach
Highlights the importance of consumer spending. versus government purchases
Income approach
Emphasizes information about the relative importance of different factors of production
Value-Added Approach
Useful for tracking how goods are sold and resold
Expenditure Approach Equation
Consumption (C) + Investment (I) + Government purchases (G) + Net exports (NX) = Total expenditure
Consumption (C)
Measures spending on goods and services by private individuals and households
True or False:
Rent and college tuition are included in consumption
A used camera bought on eBay is included in consumption
True
False
Investment (I)
Includes spending on productive inputs, such as factories, machinery, and inventories.
Inventory
The stock of goods that a company produces now but does not sell immediately
Government purchases (G)
Represents goods and services bought by all levels of government
Net Exports (NX)
Exports minus imports
If exports are higher than imports, NX will be____ (Positive/Negative)
Positive
Expenditure Equation
Expenditure = C + I + G + NX = Production
National Income equation
National Income= Wages + Interest + Rental income + Profits
Real GDP
GDP calculation in which goods and services are valued at constant prices
Nominal GDP
GDP calculation in which goods and services are valued at current prices
GDP Deflator
Measure of the overall change in prices in an economy, using the ratio between real and nominal
GDP Deflator equation
= (Nominal GDP/Real GDP) x 100
GDP Per Capita
A Country’s GDP divided by its population
Recession
A Period of significant economic decline
Depression
A severe or extended recession
Goods and services that are consumed by an end-user are called
capital goods.
intermediate goods.
investment goods.
final goods.
Final Goods.
Identify four categories of total expenditure.
Government spending
Net exports
Net imports
Consumption
Investment
Production
Government spending
Net exports
Consumption
Investment
GDP is defined by which of the following factors?
Country boundaries
Labor contribution
Land entitlements
Market value
Capital requirements
Final goods
Time period
Country boundaries
Market value
Final goods
Time period
In the expenditure approach, intermediate goods are part of GDP
as a form of foreign-sector spending on goods and services.
The value of intermediate goods is never included in GDP.
as a form of government spending on goods and services.
since their direct value represents investment spending by businesses.
only in the sense that their value is contained in the market price of the final good.
only in the sense that their value is contained in the market price of the final good.
Why do economists count only the market value of final goods and services in GDP?
To exclude the value of intermediate goods
To include the value of second-hand goods
To include GNP
To avoid double-counting
To avoid double-counting
Expenditures by one person translate into____ for another person.
income
For any given base year, which of the following is true?
GDP deflator = 100
Nominal GDP > Real GDP
Nominal GDP < Real GDP
Nominal GDP = Real GDP.
GDP deflator = 0
GDP deflator = 100
Nominal GDP = Real GDP.
Note 
Flashcard (106)