Understanding GDP, GNP, and National Accounts
Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is the total production of final goods and services made by the factors of production located within a country in a given period. Output is defined as the sum of all final goods and services, since they do not take intermediate goods into account or the process that has been used to produce them, thus avoiding double counting. Investments in capital assets are considered in the GDP as final goods, even though they are used as inputs, they
Read MoreUnderstanding Key Economic Indicators: GDP, GNP, and Income Distribution
Key Economic Indicators
Gross Domestic Product (GDP) Magnitude: Measures the value of final goods and services produced within an economy during a specific period. It’s expressed as GDP at market prices (GDPmp) or GDP at factor cost (PIBcf).
GDP at Factor Cost (PIBcf): Represents the cost of production, assessing the output of goods and services at factory prices. It excludes indirect taxes and includes subsidies received by companies.
GDP at Market Price (PIBmp): Values goods and services at their
Read MoreUnderstanding Key Economic Indicators and Growth
Consumer Price Index (CPI) and Real Value
The Consumer Price Index (CPI) is used to deflate nominal values into real values, allowing us to compare purchasing power over time. The formula is:
Real Value (year y) = Nominal Value (year x) * (CPI (year y) / CPI (year x))
For example, the real US federal minimum wage has declined by $3 since 1960. Market imperfections, such as lack of information, lack of competition, or high costs of entry, can contribute to this.
Unemployment and Business Cycles
The natural
Read MoreBusiness Terms and Definitions: A Comprehensive List
Business Terms and Definitions
Financial Terms
Income Budget
The budget which sets out estimates of the likely demand for and value of the firm’s sales.
Interest Rates
The additional cost for borrowing money.
Liquidity
The measure of how close an asset is to cash.
Loans
Borrowing money from the bank.
Long-Term Liabilities
Debts that have longer than a year to be paid back.
Loss Leaders
A low price on a product to attract customers.
Margin of Safety
The difference between the actual level of output and the break-
Read MoreEconomic Activity: Sectors, Agents, and Impact
What is Economic Activity?
People have many needs: food, clothing, housing, medical care, etc. We call economic activity any process by which we obtain the products and services that meet those needs. Economic activities cover three stages: the production of what we need, distribution, and consumption.
The needs and desires of people are infinite, but the means we employ to meet them (raw materials, labor, money, etc.) are limited. So we have to choose what goods and services are produced, in what
Read MoreUnderstanding the Tertiary Sector: Services, Trade, and Tourism
The Tertiary Sector: A Comprehensive Analysis
The tertiary sector, also known as the service sector, is a non-productive economic sector that provides services to all citizens. It is the predominant sector in developed countries. It encompasses a wide range of activities, including health, construction, tourism, trade, and education.
Tertiary Sector Subcategories
The tertiary sector can be broadly divided into two subcategories:
- Superior Tertiary Sector: This segment includes individuals with a good