Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
18 Cards in this Set
- Front
- Back
|
Gross National Product (GNP)
|
The market value of all final goods and services produced by permanent residents of a nation within a given period of time
|
|
|
GDP as the sum of expenditure
|
Add all expenditures on final goods and services in the economy, including:
Consumption Investment Government Expenditures Net Exports (Exports – Imports) |
|
|
GDP as the sum of incomes
|
Add all incomes earned by factors in the economy, including:
Wages (labor) Rent (land) Profits (capital) |
|
|
Factors of GDP
|
consumption, investment, government purchases, and net exports
Y = C+I+G+NX |
|
|
Consumption
|
spending by households on goods and services
|
|
|
Investment
|
purchase of goods that will be used in the future to produce more goods and services
|
|
|
Government purchases
|
spending on goods and services by local, state, and federal governments.
|
|
|
Net exports
|
exports - imports
|
|
|
Nominal GDP
|
production of goods and services valued at current prices
|
|
|
Real GDP
|
production of goods and services valued at constant prices (uses constant base-year prices)
|
|
|
Is real GDP affected by price?
|
No...changes in real GDP reflect only changes in the amounts being produced
|
|
|
GDP Deflator
|
a measure of the price level calculated as a ratio of nominal GDP to real GDP times 100. Reflects whats happened to the price.
(Nominal GDP / Real GDP) X 100 |
|
|
Problems with GDP
|
Sometimes, “bad” things are counted in
Non-market activity is not counted Illegal – (drugs) Legal – (work at home) Many countries still engage quite heavily in barter, or production for personal consumption |
|
|
Consumer Price Index
|
measure of the overall cost of the goods and services bought by a typical consumer
|
|
|
CPI Equation
|
CPI year x = (Cost of basket in year x / cost of basket in base year) X 100
|
|
|
Inflation Rate
|
the percent change in the price index from the preceding period
Inflation rate in year 2 = ((CPI in year 2 – CPI in year 1) / CPI in year 1) X 100 |
|
|
Producer price index
|
measure of the cost of a basket of goods and services bought by firms
|
|
|
Problems with CPI
|
Substitution bias – when prices change from one year to the next, they do not all change proportionately as some prices rise more than others.
Introduction of new goods – this makes more variety in the market, consumers have more choices and each dollar is worth more. Unmeasured quality change – if the quality of a good deteriorates from one year to the next, the value of a dollar falls, even if the price of the good stays the same, because you are getting a lesser good for the same amount of money. |
