Chapter 12 – Gross Domestic Product

Define Gross Domestic Product (GDP). Identify its 4 categories and explain why it is important.

Gross Domestic Product is the dollar value of all final goods and services produced within a country’s border in a given year. It has 4 categories: consumer goods and services, business goods and services, government goods and services, and import goods and services.

Explain the difference between final products and intermediate products and how they factor in GDP.

Final products are products in the form sold to consumers while intermediate products are products used in the production of final goods. The dollar value from final products are then added up to calculate GDP.

Explain the difference between real and nominal GDP.

Real GDP is GDP expressed in current prices while nominal GDP is GDP expressed in constant, or unchanging, prices.

Identify the limitations of GDP.

Limitations of GDP include nonmarket activities, the underground economy, negative externalities, and the quality of life.

Explain the difference between GDP and Gross National Product (GNP).

GDP is the value of all goods and services produced in a year while Gross National Product (GNP) is the annual income earned by US-owned firms and US citizens.

Explain aggregation supply.

Aggregation supply is the total amount of goods and services in the economy available at all possible price levels.

Explain aggregation demand.

Aggregation demand is the total amount of goods and services in the economy that will be purchased at all possible price levels.

Identify and explain the phases of the business cycle.

The phases of the business cycle are expansion and economic growth, peak or height of expansion, contraction being a decline in the economic activity, and trough or the lowest point.

Identify the factors that keep the business cycle going.

The business cycle keeps going because of investment, interest rates and credit, consumer expectations, and external stocks (ex. distributions in oil supply, war, natural disasters)

Identify key economic indicators used to forecast the business cycle.

Key economic indicators include the stock market, interest rate, manufactures’ order for new capital goods, housing starts, CPI, retail sales, consumer confidence, PPI, housing prices, and consumer credit debt.