what is gross domestic product
the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period and functions as a scorecard of a given country's economic health
how often is GDP calculated
quarterly and annually
what are the three ways in which GDP can be calculated
expenditures, production, or incomes
what is the difference between real GDP and nominal GDP
real GDP takes into account inflation while nominal GDP does not
what encompasses calculating a countries GDP
all private and public consumption, government outlays, investments, additions to private inventories, paid-in construction costs, and the foreign balance of trade. (Exports are added to the value and imports are subtracted)
when does a countries GDP tend to increase
when the total value of goods and services that domestic producers sell to foreign countries exceeds the total value of foreign goods and services that domestic consumers buy
when does a countries GDP tend to decrease
the amount that domestic consumers spend on foreign products is greater than the total sum of what domestic producers are able to sell to foreign consumers
which GDP is a better method for expressing long-term national economic performance
real GDP since is uses constant dollars
what is nominal GDP
an assessment of economic production in an economy that includes current prices in its calculation - it doesn't strip out inflation or the pace of rising prices, which can inflate the growth figure.
what are goods and services valued at in nominal GDP
all goods and services are valued at the prices that those goods and services are actually sold for in that year
what are the ways in which nominal GDP is evaluated
in either the local currency or U.S. dollars at currency market exchange rates to compare countries' GDPs in purely financial terms
when is nominal GDP used
when comparing different quarters of output within the same year
what GDP is used when comparing two or more years
Real GDP because the removal of the influence of inflation allows the comparison of the different years to focus solely on volume
what is Real GDP
an inflation-adjusted measure that reflects the number of goods and services produced by an economy in a given year, with prices held constant from year to year to separate out the impact of inflation or deflation from the trend in output over time
Rising prices tend to increase a country's GDP, but what does it not necessarily reflect
it does not reflect any change in the quantity or quality of goods and services produced
why can it be difficult by looking just at an economy's nominal GDP
because it can be difficult to tell whether the figure has risen because of a real expansion in production or simply because prices rose
how can economists adjust for inflations impact
By adjusting the output in any given year for the price levels that prevailed in a reference year, called the base year - it is possible to compare a country's GDP from one year to another and see if there is any real growth
what is the GDP price delfator
the difference in prices between the current year and the base year
what would be the base year if prices rose by 5% since the base year
the deflator would be 1.05
why is Nominal GDP usually higher than real GDP
this is because inflation is typically a positive number
what does it signal If there is a large discrepancy between a nation's real GDP and nominal GDP
this may be an indicator of significant inflation or deflation in its economy