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Ch. 9

Gross Domestic Product

TermDefinition
2 ways to measure GDP 1)The flow-of-income approach 2)Expenditures approach
What is the difference between GDP and NDP? NDP allows for depreciation of plant and equipment
Depreciation A fall in the price of a nation's currency relative to foreign currencies
NDP= GDP-Depreciation
Gross investment Total amount we invest in new plant and equipment
Net Investment The additional plant and equipment that we end up with by the end of the year. Gross investments-depreciation
Value added The market value of a firm's output less the value of the inputs the firm has bought from the previous seller. (To avoid multiple counting)
Transfer payment A payment by one branch of government to another or to an individual. Do no go directly into GDP.
FInancial Transaction The purchases of corporate stocks or bonds, government securities, real estate, or other financial assists. Does not go into GDP because it does not represent the purchase of new plant and equipment
Percentage Change= Current price-original divided by original
Nominal GDP The value of the final goods and services produced in a given year valued at that year's price.
Real GDP GDP corrected for inflation
Real GDP= Nominal GDP/ GDP deflator *100
GDP Deflator A price index used to measure price changes in the items that go into GDP (Calculated quarterly by the Department of Commerce)
If prices rise by a larger percentage than output falls, what happens to GDP? GDP will increase
If GDP rose and real GDP fell, what happened? The GDP deflator (rate of inflation) rose more than real GDP fell. Real GDP= GDP- inflation rate or GDP deflator
Percent Change in GDP= % Change in real GDP+ % Change in GDP Deflator
Per capita real GDP Real GDP divided by population
The underground economy the unreported or illegal production of goods and services that is not counted in GDP.
Genuine Progress Index (GPI) Made up of GDP plus the value of housework, volunteer work, minus the cost of crime, natural resource depletion, and the loss of leisure time.
Created by: ltameirao
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