Concept and Indicators Flashcards

Which of the following transactions IS included in GDP?

Answer: A builder constructing a new home for sale

New residential construction is investment (I) in the expenditure approach; used goods, financial assets, and transfer payments are excluded.

When the BEA releases its 'advance' GDP estimate, it is based on:

Answer: Roughly two-thirds of the data, with estimates filling the rest

The advance estimate uses about two-thirds of available source data and is revised in subsequent 'second' and 'third' releases.

Which component of GDP is typically the MOST VOLATILE over the business cycle?

Answer: Business investment (I)

Business investment in equipment, structures, and inventories swings sharply with economic confidence and credit conditions.

GNP differs from GDP in that GNP:

Answer: Adds income earned by residents abroad and subtracts income earned domestically by foreigners

GNP = GDP + income earned by U.S. residents abroad − income earned in the U.S. by foreign residents.

A country's nominal GDP rose 8% while its price level rose 5%. Approximately what was real GDP growth?

Answer: 3%

Real GDP growth ≈ Nominal GDP growth − Inflation rate = 8% − 5% = 3%.

Which of the following is a LIMITATION of GDP as a welfare measure?

Answer: It does not account for income distribution or environmental degradation

GDP can grow while inequality widens or natural resources are depleted, missing important dimensions of societal well-being.

Intermediate goods are excluded from GDP calculations to avoid:

Answer: Double counting

Counting both the steel and the car it goes into would count the steel's value twice; only the final car's value is included.