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Summary Economics End-Term (6011P0206Y)
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Economics summary end-term
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Economics end termWeek 5:
Chapters: 26, 28
Chapter 26: GDP and the measurement of progress
Gross domestic product (GDP) the market value of all finished goods and services produced
within a country in a year
GDP per capita is GDP divided by population
Intermediate goods goods and services are sold to firms and then bundled or processed
with other goods or services for sale at a later stage.
Sales of used goods are not included in the GDP, because GDP in meant to measure production.
For example, a computer chip is not counted in GDP but the whole computer is.
GDP is independent from the nationalities of workers it is how much a nation produces in a
year (so U.S. GDP is the market value of the finished goods and services produced by labor and
capital located in the U.S., so within the U.S. borders)
Gross national product (GNP) the market value of all finished goods and services produced
by a country’s residents, wherever located, in a year
National wealth refers to the value of a nation’s entire stock of assets (for example a tractor
built in 2005 that is still operating today is part of the U.S. wealth but not part of today’s GDP)
Growth rate of GDP tells us how rapidly the country’s production is rising or falling over time
GDP ( new )−GDP (old )
100 %
GDP( old )
Nominal variables are variables which have not been adjusted for changes in prices.
Nominal GDP is calculated using prices at the time of sales.
A real variable is one that corrects for inflation, namely a general increase in price over time.
Real GDP is calculated using the same prices all years.
, It doesn’t matter what prices we use to calculate it as long as they are the same prices in all
years
The GDP deflator is a price index that can be used to measure inflation
Nominal GDP
GDP deflator = 100
Real GDP
When calculating the GDP deflator for 2016 with using 2009 dollars
What the deflator tells us is that 2016 prices were about 11.45% higher than 2009
(111.45 – 100)
Growth in real GDP per capita is usually the best reflection of changing living standards.
A recession is a significant, widespread decline in real GDP and employment
Business fluctuations or business cycles are the short-run movements in real GDP around its
long-term trend
(Trend = normal growth rate)
Predictions about a recession are not easy, this is because economic data are often revised over
time.
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