Gross Domestic Product: the total income earned domestically, including the income
earned by foreign-owned factors of production.
Market value of all final goods and services produced within an economy.
total expenditure earned on domestically produced goods and services
total income of everyone in the economy
income = expenditure
When you buy something (expenditure) its income for someone else.
GDP = (price X quantity) + (price X quantity)
Currently produced (not used)
When add to inventory it raises GDP but not when they then sell the inventory
Only final goods
Imputed value: estimate of the value of a good that isn’t sold in the
• Imputed rent if you buy a house
• No underground
Nominal GDP: value of goods and services measured at current prices.
Real GDP: value of goods and service using a constant set of prices
Not influenced by changes in price.
Base year price X current year quantity
Real GDP = (nominal GDP) / (GDP deflator)
GDPdeflator: implicit price deflator for GDP.
Price of output relative to its price in the base year.
(nominal GDP / Real GDP)
Nominal GDP =(real GDP) X (GDP deflator)
Change base year value throughout the years to keep it up to date and accurate
Y = C + I + G + NX (national income accounts identity.
Consumption: goods and services bought by households (nondurable, durable
Investment: goods bought for future use (business fixed, residential fixed, and
inventory) [factories, houses, and inventory]
Government purchases: goods and services bought by federal, state, and local