Economics Chapter 11: GDP – Flashcards
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What is a GDP?
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GDP measures the market value of all final goods and services produced in the economy during a given period- 1 year.
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What does GDP stand for?
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Gross Domestic Product
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What is included in GDP?
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GDP includes production in the United States by foreign firms.
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What is excluded in GDP?
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GDP excludes foreign production by US firms.
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What are intermediate goods and services?
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Intermediate goods and services are those purchased for additional processing and resale.
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What is double counting?
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Sales of intermediate goods and services are excluded from GDP to avoid the problem of double counting.
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What are intermediate goods?
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Intermediate goods are used as inputs into the production of another good or service.
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Give an example of Intermediate goods.
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windshield, gearboxes, and batteries
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Give an example of Intermediate services.
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banking and insurance services
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What is the expenditure approach?
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GDP is based on the expenditure approach- the most common method used.
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What is the income approach?
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GDP based on the income approach.
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What is the definition of the expenditure approach?
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Expenditure approach adds up the spending on all final goods and services produced in the economy during the year.
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What is consumption?
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Consumer good. Consists of purchases of final goods and services by households during the year.
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What is the definition of investment?
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Investment consists spending on new capital goods and additions to inventories. Business goods and services.
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What is the definition of aggregate expenditure?
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Aggregate expenditure equals the sum of consumption, investment, government purchases, and net exports.
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What is the formula for GDP?
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C+I+G+(X-M)=GDP
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What is CPI?
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Consumer Price Index
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What does CPI measure?
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CPI measures changes over time in the cost of buying a "market basket" of goods and services purchased by a typical family.
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What is price index?
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The GDP price index includes all goods and services produced.
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What is a business cycle?
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A business cycle is a period of macroeconomic expansion followed by a period of contraction.
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What are the four phases of a business cycle?
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1. Expansion/ Growth
2. Peak
3. Contraction/ Recession
4. Trough
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What is the difference between recession and depression?
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Recession is bad:
-Declining GDP+ rising unemployment
-6-18 months
Depression is worse:
-An extended recession
-High unemployment+ declining output
