Chapter 14: GDP
Terms in this set (25)
What is gross domestic product (GDP)?
value of all final goods and services produced in a country during a given period of time.
Value of Total Production
= Value of Total Expenditure
Why do we measure our economy's performance?
We measure our economy's status in order to see how its performance has changed over time.
What is the expenditure approach to measuring GDP?
calculates the GDP by adding the expenditures of market participants on final goods and services over a given period of time.
= C + I + G + (X-M)
What is consumption? (C)
purchases of consumer goods and services by households.
what does consumption usually broken down into
- nondurable goods
- semi-durable goods
- durable goods
What is investment (I)?
creation of capital goods to augment future production.
2 components of investment spending
1. fixed investment
2. inventory investment
Net exports (X - M)
Canada is an open economy, highly dependent on foreign trade.
The Income Approach to Measuring GDP
calculates GDP by summing up the incomes received by owners of resources used in the production of goods and services (i.e. factor payments).
measures the amount of income received by households (including transfer payments) before income taxes.
the personal income available after taxes.
What are the problems with GDP in measuring output?
- It is difficult to compare nominal GDP over time because of the changing value of money over time.
- Increases in GDP could be from increases in output OR increases in prices (inflation).
measure of the trend in prices of goods and services over time.
corrects GDP statistics for changing prices
How is real GDP calculated?
= (Nominal GDP / GDP deflator) (100)
Real GDP per capita
- real output of goods and services per person
- most often used to measure economic well-being.
Several important factors are excluded from the calculation of GDP
- Non-market transactions
- Underground economy
- Quality of goods
include the provision of goods and services outside of traditional markets for which no money is exchanged.
includes unreported income from both legal and illegal sources.
- Illegal activities are hidden, therefore unreported.
- Legal activities go unreported to avoid taxes.
has a positive value that does not show up in GDP accounts.
side effects that accompany production and consumption, which are not included in the price
- This means the true value to society is not being reflected
Quality of goods
- GDP can also miss important changes in the quality of goods.
- This makes it difficult to measure GDP accurately.