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32 Cards in this Set

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What is GDP?
The market value of all final goods and services produced whithin an economy during a specific time.
Other GDP Properties
Transactions of previously produced products (such as used cars, old houses, any any used items) are excluded from the GDP of the current period. Financial transactions are also not counted, but commissions are counted. Home production is also excluded, as well as illegal transactions. This causes GDP to be understated.
What is the GDP equation?
GDP=C+I+G+(X−M)
Consumption + Investment + Government + (exports − imports)
Nominal GDP
Gross domestic product measured in current dollar values.
Real GDP
Adjusted for inflation at the conastant dollar value from a base year.
Real GDP
Adjusted for inflation at the conastant dollar value from a base year.
Why are the differences between GDP and nominal GDP important?
Because if you only use nominal GDP, you may deduct that GDP increased when only prices rose. Therefore you use a base year to use the same prices and multiply that by the quantities for each year, and that will show a change in output.
Calculate Nominal GDP
Nominal GDP
〖NGDP〗_1990=(50∗$6,000)+(100∗$12,000)=1,500,000 〖NGDP〗_2005=(500∗$2,000)+(150∗$20,000)=4M
Real GDP using the later year as the base year
Real GDP using 2005 as a base year
〖NGDP〗_2005=(50∗$2,000)+(100∗$20,000)=2,100,000 〖NGDP〗_2005=(500∗$2,000)+(150∗$20,000)=4,000,000
Calculate Real GDP
Real GDP using 1990 as a base year
〖NGDP〗_1990=(50∗$6,000)+(100∗$12,000)=1.5 mil 〖NGDP〗_1990=(500∗$6,000)+(150∗$12,000)=4.8 mil
What areas does GDP cover?
It covers products produced within a country's border, whether produced by a local firm or a foreign firm. So a chevy (american) built in the US will be part of the GDP for the US, while a Toyota (japanese) that is also built in the US will also be counted. But even though Chevy is american, if the vehicle is built in Korea, like the chevy Aveo, it will not be considered as part of the GDP.
Gross National Product (GNP)
total income earned by a nation's permanent residents.
It includes-income that american citizens earn abroad.
excludes income that foreigners earn in the United States.
What areas does GNP cover?
It covers income generated by a nations residents. Therefore, the chevy that was produced in the US, and the Chevy that was produced in korea would both be counted in GNP. The toyota, even the one built in the US would be excluded.
Total Expenditures method for GDP
Sum all expenditures (made by consumers, firms, government, and foreigners) on domestically-produced final goods and services.
Total income approach to GDP
sum all income generated by producing domestic final goods and services.
National Income
The total income earned by a nation's residents in the production of goods and services.
Personal Income
is the income that households and noncorporate businesses receive.
GDP deflator
measure of the price levvel calculated as the ratio of nominal gdp to real gdp times 100.
GDP deflator Equation
〖GDP Deflator〗_2005=〖NGDP〗_2005/(〖RGDP〗_2005^((1990)) ) x 100
Using 1990 as base year
How to calculate GDP deflator
((500 x 2000)+(150x 20000))/((500 x 6000)+(150 x 12000)) x 100=83.33
If GDP deflator for
1990 = 100 (base year)
2005 = 83.33
Is GDP always reliable as a measure of economic Well being?
no it is not, because GDP does not include things such as quality of life, leisure, quality of the environment, and the value of goods and services produced but not sold in formal markets.
Consumer Price Index (CPI)
Measure of the overall cost of the goods and services bought by a typical household.
How to calculate a CPI basket
How to compute CPI
Calculate inflation rate
Inflation Rate
Inflation Rate = (this years price −last years price)/(last years price) x 100
CPI: Laspeyres or Paasch?
Laspeyres Index
GDP Deflator: Laspeyres or Paasch
Paasch Index
GDP Deflator: Laspeyres or Paasch
Paasch Index
Planned Expenditure
How much a group plans to spend. It includes planned consumption expenditure, planned investment expenditure, planned government expenditure.
Planned Consumption Expenditure
C=C(Y-T)
Planned investment expenditure
I
Planned Government Expenditure
G