Chapter 10
Wednesday, November 5, 2014
7:53 PM
Chapter 10
Gross domestic product
The monetary value of all the finished goods and services
produced within a country's borders in a specific time period,
though GDP is usually calculated on an annual basis. It includes
all of private and public consumption, government outlays,
investments and exports less imports that occur within a
defined territory.
GDP = C + G + I + NX
where:
"C" is equal to all private consumption, or consumer spending,
in a nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on
capital
"NX" is the nation's total net exports, calculated as total
exports minus total imports. (NX = Exports - Imports)
Consumption
The consumption function is a mathematical formula laid out
by famed economist John Maynard Keynes. The formula was
designed to show the relationship between real disposable
income and consumer spending, the latter variable being what
Keynes considered the most important determinant of short-
term demand in an economy.
The consumption function is represented as:
income and consumer spending, the latter variable being what
Keynes considered the most important determinant of short-
term demand in an economy.
The consumption function is represented as:
Where:
C = Consumer spending
A = Autonomous consumption, or the level of consumption
that would still exist even if income was $0
M = Marginal propensity to consume, which is the ratio of
consumption changes to income changes
D = Real disposable income
Investment
An asset or item that is purchased with the hope that it will
generate income or appreciate in the future. In an economic
sense, an investment is the purchase of goods that are not
consumed today but are used in the future to create wealth. In
finance, an investment is a monetary asset purchased with the
idea that the asset will provide income in the future or
appreciate and be sold at a higher price.
Government purchases
Expenditures made in the private sector by all levels of
government, such as when a government entity contracts a
construction company to build office space or pave highways.
Net exports
The value of a country's total exports minus the value of its
total imports. It is used to calculate a country's aggregate
expenditures, or GDP, in an open economy.
Nominal GDP
A gross domestic product (GDP) figure that has not been
adjusted for inflation. Also known as "current dollar GDP" or
"chained dollar GDP."
Real GDP
An inflation-adjusted measure that reflects the value of all
adjusted for inflation. Also known as "current dollar GDP" or
"chained dollar GDP."
Real GDP
An inflation-adjusted measure that reflects the value of all
goods and services produced in a given year, expressed in
base-year prices. Often referred to as "constant-price,"
"inflation-corrected" GDP or "constant dollar GDP".
GDP deflator
An economic metric that accounts for inflation by converting
output measured at current prices into constant-dollar GDP.
The GDP deflator shows how much a change in the base year's
GDP relies upon changes in the price level. Also known as the
"GDP implicit price deflator."
___The Economys Income and Expenditure
The circular flow diagram
___The measurement of gross domestic product
___The components of GDP
___Real versus Nominal GDP
___The GDP Deflator
___Is GDP a good measure of Economic Well-Being?