What does GDP measure?

GDP measures the total income of everyone in the

economy and the total expenditure on the
economy's output of goods and services.

Why does GDP measure both total income and total For an economy, income must equal expenditure.
expenditure?

What is the Circular-Flow Diagram? The Circular-Flow Diagram shows how households
buy goods and services from firms, and firms use
their revenue from sales to pay wages to workers,
rent to landowners, and profit to firm owners.

What does GDP equal in the markets for the factors GDP equals the total wages, rent, and profit paid by
of production? firms in the markets for the factors of production.

How can we compute GDP for an economy? We can compute GDP for an economy by adding up
the total expenditure by households or by adding up
the total income (wages, rent, and profit) paid by
firms.

Is GDP affected by how we compute it? No, GDP is the same regardless of how we
compute it.

Do households spend all their income? No, households do not spend all their income; they
pay some of it to the government in taxes, and they
save some for use in the future.

Who else buys goods and services produced in the Governments and firms that plan to use them in the
economy besides households? future to produce their output also buy goods and
services produced in the economy.

What is GDP? Gross Domestic Product is the market value of all

final goods and services produced within a country
in each period.

How does GDP use market prices to measure Market prices reflect the value of goods, and GDP
economic activity? adds together many kinds of products into a single
measure of the value of economic activity.

What is the expenditure method of GDP? Consumption + Investment + Government Spending

+ Net Exports (Exports – Imports).
What does GDP include? GDP includes all items produced in the economy
and sold legally in markets, both tangible goods and
intangible services.

What is the difference between intermediate goods GDP includes only the value of final goods because
and final goods in GDP? the value of intermediate goods is already included
in the prices of the final goods.

What is an exception to the principle of including When an intermediate good is produced and added
only final goods in GDP? to a firm’s inventory of goods for use or sale later.

Does GDP include transactions involving items No, GDP includes only goods and services currently
produced in the past? produced.

What is GDP? GDP stands for Gross Domestic Product, which

measures the total value of goods and services
produced within a country's borders.

What is included in a nation's GDP? Items that are produced domestically, regardless of
the nationality of the producer, are included in a
nation's GDP.

What is the time interval for measuring GDP? The time interval for measuring GDP is usually a
year or a quarter (three months).

What is the Expenditure Approach for calculating The Expenditure Approach calculates GDP by
GDP? summing up all the expenditures made on final
goods and services.

What are the four main aggregate expenditures that The four main aggregate expenditures that go into
go into calculating GDP? calculating GDP are consumption by households,
investment by businesses, government spending on
goods and services, and net exports.

What are the components of GDP? The components of GDP are consumption (C),
investment (I), government purchases (G), and net
exports (NX).

What is the formula for calculating GDP? The formula for calculating GDP is Y = C + I + G +
NX.

What is Gross Domestic Product (GDP)? A measure of the total income or total output in the
economy.
Why must income equal expenditure in a nation's Because in every transaction, the income of the
macroeconomy? seller must be equal to the expenditure of the buyer.

What is Gross National Product (GNP)? A measure of the total market value of all final
goods and services produced by nationals or
permanent residents of a country during a given
year, regardless of where the income for the final
goods and services was earned.

What is Nominal Gross Domestic Product? A measure that values the production of goods and
services at current prices.

How is Nominal GDP calculated? Nominal GDP = (current quantity) x (current price
per unit).

What is Real Gross Domestic Product? A measure that values the production of goods and
services at constant prices.

How is Real GDP calculated? Real GDP = (base year price per unit) x (current
year quantity).

What is the Gross Domestic Product Deflator? A measure of the price level calculated as the ratio
of nominal GDP to real GDP times 100. It tells us
what portion of the rise in nominal GDP that is
attributable to a rise in prices rather than a rise in
the quantities produced.

What is the Consumer Price Index? A comprehensive measure of the change in prices
from one year to the next.

What is the difference between GDP deflator and GDP deflator is a broader measure of inflation while
CPI? CPI is a more specific measure that focuses on the
cost of living for a typical consumer.

What is substitution bias? When the consumer price index fails to justify the
substitution effect, where individual consumers
substitute the goods they have been using for
another after a cheaper price.

What is the problem with the introduction of a new The consumer price index fails to reflect the
product in calculating the cost of living? increase in purchasing power for the dollar.
What is quality bias? When there are changes in quality for the existing
product that a consumer has been using, but the
improvements or invention of a new product are not
considered while calculating the cost of living for a
consumer.

What is inflation? The rate of increase in price over a given period of

time.

What is indexation? A method of correcting economic variables for the

effects of inflation by adjusting them based on
changes in a price index.

What is a nominal interest rate? The interest rate that is not adjusted for inflation.

What is a real interest rate? The interest rate that is adjusted for inflation.

What is the overall measure of inflation? The increase in prices or the increase in the cost of
living in a country.

What are the problems in measuring the cost of Unmeasured quality changes, substitution bias, and
living? new product bias.

What is nominal GDP? The gross domestic product (GDP) that is not
adjusted for inflation.

What is the difference between nominal GDP and Nominal GDP is not adjusted for inflation, while real
real GDP? GDP is adjusted for inflation.

What are some methods of correcting economic Indexation, nominal interest rate, and real interest
variables for the effects of inflation? rate.

Where can I find more information about measuring The provided references include articles,
a nation's income and inflation? documents, and videos that explain these concepts
in detail.