Measuring A Nation's Income

Front 1

study of how households and firms make decisions and interact in markets

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Microeconomics

Front 2

study of economy-wide phenomena, including economics/output growth, unemployment, and inflation/deflation

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Macroeconomics

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three major concerns of macroeconomics

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output growth, unemployment, and inflation

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measures the total income of everyone in the economy and the total expenditure on the economy's output of goods and services

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What is gross domestic product (GDP)?

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because income must equal expenditure because every transaction has a buyer and a seller, and every dollar of spending by some buyer is a dollar of income for some seller

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How is GDP related to a nation's total income and spending?

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GDP includes all items produced in the economy and sold legally in markets.

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What are the components of GDP?

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Y = C + I + G + NX

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Components of GDP, consumption, investment, government purchases, and net exports

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government, foreign sector, and the financial system

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What the diagram omits

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the total spending by households on goods and services except purchases of new housing

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Consumption (C) is

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is total spending on goods that will be used in the future to produce more goods (does not mean stocks and bonds)

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Investment (I)

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is all spending on the goods and services and capital purchased by government at the federal, state, and local levels

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Government Purchases (G)

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Exports - Imports

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Net Exports (NX) = ?

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When your exports - imports (NX) is less than 0 because your exports are less than your import

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Trade Deficit

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When your exports - imports (NX) is greater than 0 because your exports are greater than your imports

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Trade surplus

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adjusting to real GDP

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How is GDP corrected for inflation?

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values the production of goods and services at current prices. It is not corrected for inflation

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Nominal GDP

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values the production of goods and services at constant prices. It is corrected for inflation.

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Real GDP

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equals the sum of (price X quantity)

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Value of output (GDP) in a given period

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equals the (final value - initial value) all over the initial value then multiplied by 100

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percent change

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economic decline generally identified by a fall in GDP in two successive quarters

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recession

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measure of the overall level of prices

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GDP deflator = 100 x (nominal GDP/real GDP)

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No it can't measure quality of environment, leisure time, non-market activity, and income distribution

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Does GDP measure society's well-being?