Question

Economic Growth

 1. Define GDP

 2. List the four components, and give an example of each

 C

 I

 G

 (X-M)

 3. Identify what is not included in GDP

 4. What's the difference between nominal and real GDP?

 5. Which is used to best measure an economy, GDP or GDP per capita. Explain why.

Answer 1

(1) GDP is the "market value of all the final goods and services produced in an economy during a specific period of time"

(2) Components are:

Consumption - you purchase a new car

Investment - Amazon buys a new delivery truck

Government expenditure - the government purchases military goods

Net exports (Exports - imports) - An Indian purchasing a car made in US is a part of exports from the US

(3) There are several things not included in GDP such as the value of leisure time, production for homes use, the value of non market goods like increased pollution, the change in the quality of goods, the happiness and stress level of people, the degree of inequality etc.

(4) Nominal GDP is the value of all the final goods and services in the economy measured at the current year prices. Real GDP is the value of all the final goods and services in the economy measured at the base year prices. Thus, real GDP controls for the increase in GDP due to inflation and is more widely reported