Chapter 7 Taking the Nation s Economic Pulse gross domestic product GDP the market value of final goods and services produced within a country during a specific time period o DO include final goods and services services rendered and sales commissions production by individuals of any citizenship within the U S and the value of services provided by realtor car dealer clothing reseller etc o DO NOT include intermediate goods income transfers financial transactions welfare social security production by U S citizens outside the country and the value of used goods two ways to measure GDP o the expenditure approach personal consumption expenditures gross private domestic investment government consumption and gross investment net export of goods and services GDP personal consumption expenditures household spending on consumer goods and services private investment production of capital goods that provide a flow of future services government consumption and gross investment expenditures on goods and services consumed purchases of capital goods net exports goods and services produced domestically and sold to foreigners the resource cost income approach aggregate income employee compensation income of self employed rents profits interest non income cost items indirect business taxes depreciation net income of foreigners GDP gross national product GNP total market value of all final goods and services produced by the citizens of a country GDP net income of foreigners Real GDP if real GDP increases output is increasing incomes are rising and the economy is growing if real GDP decreases output is decreasing incomes are falling and if there are 2 quarters of a falling real GDP the economy is in recession inflation increase in the general level of prices over time purchasing power of money is falling if inflation is unexpected borrowers win and savers lose inflation rate this year s CPI last year s CPI last year s CPI x 100 deflation decrease in the general level of prices over time purchasing power of money is rising if unexpected savers win and borrowers lose consumer price index CPI measures the impact of price changes on the cost of the typical bundle of goods purchased by households GDP deflator measures the change in the average price of the market basket of goods included in GDP price today s dollars price old dollars x today s CPI old CPI real GDP nominal GDP inflation o o o o o o o
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