What is GDP - ANS IS -The market value of all final goods and services produced WITHIN a nation during a specific time period. -Sum of all the output from coffee shops, etc within a nations boarders. -Tallied by BEA (Bureau of economic analysis) -GDP=Consumption (C) + investment (I) + gov't purchases (G) + net exports (NX) -Measures output and income -Gauge of productivity and level of wealth -Measure living standards, economic growth and business cycle conditions Computing GDP - ANS IS -Total market value of all goods and services produced in an economy in a given year -Adds consumption, investment, gov't spending, net exports Growth Rate for GDP - ANS IS Growth Rate for GDP 2010= (GDP 2012-GDP 2011)/GDP 2011 X 100 Short comings of GDP - ANS IS Doesn't include production of non-market goods, the underground economy, production effects on the environment, or value places on leisure time. Doesn't include intermediary goods and services needed to make the final good. What are some uses of GDP data - ANS IS Measuring living standards: higher output and income = higher living standards Economic growth: Changes in living standards over time. Economic Growth - ANS IS Is measured as the percent change in real per capita GDP. GDP per capita - ANS IS A measure of the country's GDP and divides it by the number of people in the country. good for comparing countries Economic Expansion - ANS IS Occurs from the bottom of the trough to the next peak when the economy is growing faster than usual. Economic Contraction - ANS IS The period extending from the peak downward to the trough. During this time the economy is growing at a slower rate than usual. Inflation - ANS IS -Is the growth in the overall levels of prices in an economy. -Inflation causes GDP to go up even if there is no change in the quantity of goods and services provided. -caused from when gov't increases a nations money supply too quickly Real GDP vs nominal GDP - ANS IS -Real: GDP adjusted for changes in prices Computed by (pg 191) Real GDP(t) = Nominal GDP(t)/Price level (t) x100 -Nominal: A figure that has not been adjusted for inflation. Also known as current dollar GDP. Computed by Adding the actual price of all final goods and services Nominal GDP typically rises faster than real GDP since it rises with growth in both real production and growth in prices (inflation) Recessions - ANS IS Short term economic downturns. Typically last for about 6-18 months Income levels fall Great recession was in 2007-2009...real GDP fell by almost 9% in the last three months of 2008. GNP - ANS IS -Output produced by workers and resources owned by RESIDENTS of the nation. (Nationality) -a measure of a country's economic performance, or what its citizens produced (i.e. goods and services) Intermediate goods vs Final Goods - ANS IS Intermediate: Good or service that is used in the eventual production of a final good (phone case) Final: Goods that are consumed rather than used for the production in another good. (microwave) consumption - ANS IS Purchase of final goods and services by households (with the exception of new housing) Services=Haircuts, Doc Goods=Groceries, cars Investment - ANS IS Refers to private spending on tools, plant, and equipment used to produce future output. also includes purchases by businesses that add to their inventory. GDP rises when business inventories increase.