Measuring the Economy: GDP, Prices, and Fiscal Concepts

Vocabulary flashcards covering core concepts of GDP measurement, capital, investment, nominal versus real GDP, fiscal policy, and financial securities.

Gross Domestic Product (GDP)

The market value of all final goods and services produced domestically within an economy during a given time period.

Capital ($K$)

A manufactured good owned by businesses and used to produce other goods and services, which lasts for years and can be used many times.

Investment ($I$)

The spending category that includes the purchase of capital goods, changes in business inventories, or the purchase of a new house or apartment.

Final Good

A good or service purchased by the final user that does not undergo further transformation or processing in the production process.

Intermediate Good

A good that is used up or transformed into another good during the production process and is excluded from direct GDP counting to avoid double counting.

Market Value

The price an item is sold and purchased for in a market transaction, representing its final sales price at that point in time.

Market Transaction

Any instance or scenario where a buyer purchases a single item or service in a market.

Nominal GDP

The market value of final goods and services calculated using current-year prices and current-year quantities ($\text{Nominal GDP} = \text{Current Prices} \times \text{Current Quantities}$). Also called current dollar GDP.

Real GDP

The market value of final goods and services calculated using base-year prices and current-year quantities ($\text{Real GDP} = \text{Base Year Prices} \times \text{Current Quantities}$). Also called constant dollar GDP or chained GDP.

Base Year

A benchmark year whose prices are used to calculate real GDP in order to eliminate the effects of inflation (currently $2017$ for the U.S.).

Consumption ($C$)

Total expenditures made by households on newly produced goods and services.

Government Purchases ($G$)

Expenditures made by federal, state, and local governments on newly produced final goods and services.

Government Expenditures

Total government spending, calculated as government purchases plus transfer payments plus interest payments on debt ($\text{Government Expenditures} = G + \text{Transfers} + \text{Interest}$).

Net Exports ($NX$)

The total dollar value of exports minus imports ($NX = \text{Exports} - \text{Imports}$).

Trade Deficit

An economic condition occurring when a country's total exports are less than its total imports ($\text{Exports} < \text{Imports}$).

Fiscal Policy

Changes in federal expenditures and/or taxes made by Congress and the President to influence overall demand in the economy.

Monetary Policy

Actions taken by the Federal Reserve involving changes in interest rates to influence economic demand.

Federal Deficit

The annual amount the federal government borrows when total expenditures exceed tax revenues ($\text{Federal Deficit} = \text{Government Expenditures} - \text{Taxes}$).

Stock (Share)

A financial security issued exclusively by businesses that represents partial ownership in a corporation and carries an uncertain financial return.

Bond

A financial security issued by a government or corporation representing a promise to repay a specified amount of money with a fixed, certain return.

Inventory Investment

The change in unsold business inventories over a given period, bridging the difference between total production and sales to final users.

Income

Earnings received by individuals and businesses, consisting of employee compensation, net interest received, business profits, and rental income.

Leisure

Non-work time spent at personal discretion, which enhances overall well-being but is excluded from GDP calculations.