is the market value of all final goods and services produced within a country in a given period of time.
It measures 1) the total income of everyone in the economy, 2) total expenditure on the economy's output of goods and services.
GDP is the total spending
GDP (Y) = C + I + G + NX
C = Consumption, the total spending by households on goods/services
I = Investment, the total spending on goods that will be used in the future to produce more goods, including capital equipments (machinery), structures (factories) , inventories (goods produced but not yet sold)
G = Government Purchases, is all spending on the g&s purchased by govt at the feferal, state, and local levels
NX = Net Exports, Exports - Imports
values output using current prices, including the increase price under inflation. (NOT corrected for inflation)
The change in nominal GDP reflects both prices and quantities.
values output using the prices of a base year. (Corrected for inflation)
The change in real GDP is the amount that GDP would change if prices were constant (i.e zero inflation)
is a measure for the overall level of prices
GDP Deflator = 100 x (Nominal GDP/Real GDP)
the percentage increase in the GDP deflator from one year to the next
Real GDP per capita
is the main indicator of the average person's standard of living
GDP Doesn't value...
1) the quality of the environment
2) leisure time
3) non-market activity, e.g Child care, a parent provides his/her child at home
4) an equitable distribution of income
GDP is important because....
1) having large GDP enables a country to afford better schools, a cleaner environment, health care etc.
2) many indicators of the quality of life are positively corrected with Real GDP. E.g. Life Expectancy, Literacy, Internet usage.
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