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Gross Domestic Product
Economic Growth by
Expenditure Method
GDP = C+I+G+[Ex-Im]
Gross Domestic Product
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Most of us would agree that as far as
material possession go, Americans are much
better today than they were 100 years ago.
Economic growth has allowed successive
generations to have more and better goods
and services than their parents.
Gross Domestic Product
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Long-term increases in Real GDP allow an
entire society to improve its quality of life,
especially its standard of living.
Gross Domestic Product
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Measuring Economic Growth:
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Basic measure of a nation’s economic growth rate
is the percentage change of Real GDP over a
given period of time.
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GDP & Population Growth:
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Over time a nation’s population tends to grow.
Real GDP, if it is to satisfy the needs of a nation’s
growing population, must keep up with the growth rate of
the population.
Gross Domestic Product
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This is one reason that economists prefer a
measure that takes population growth into
account.
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Real GDP per Capita – Real GDP divided by the
population of a country.
Gross Domestic Product
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Australia
GDP - $ 390 Billion
India
380 Billion
Gross Domestic Product
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Australia
GDP - $ 390 Billion
Population – 20 million
India
380 Billion
1 Billion
Gross Domestic Product
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Australia
GDP - $ 390 Billion
Population – 20 million
Real GDP per capita
–
$ 18,350.00
India
380 Billion
1 Billion
$ 370.00
Gross Domestic Product
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GDP & Quality of Life:
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We can use GDP to measure standard of living, which
relates to material goods.
We cannot use it as a complete measure of people’s quality
of life.
It excludes many factors that affect the quality of life, such
as the state of the environment, the level of stress that
individuals feel in their daily lives.
GDP does give us a clue as to the wealth of a country.
Gross Domestic Product
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Physical capital {the equipment used to
produce goods and services} makes an
important contribution to the output of an
economy.
With more physical capital, each worker can
be more efficient and productive.
This is called Labor Productivity
Gross Domestic Product
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Capital Deepening – process of increasing
the amount of capital per worker.
Education, experience, and skills contributes
to the output.
Better training and more experienced
workers can produce more output per hour of
work.
Gross Domestic Product
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Saving and Investment
–
Output can be used for consumption by
consumers or for investment by firms. Income that
is not used for consumption is called savings.
Gross Domestic Product
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Population, Government, and Trade:
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Population growth does not necessarily preclude
(prevent) economic growth.
Population has to grow and the supply of capital
has to increase for capital deepening to occur.
Gross Domestic Product
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Government can affect the process of capital
deepening in several ways.
1. Raise Taxes – households have less $ to spend
(affect savings).
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Government invests in the Infrastructure, investments
will increase.
2. Foreign Trade
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Result in the value of goods a country imports is higher
than the value of goods that it exports.
Countries want a balance in foreign trade.
Gross Domestic Product
3. Technological Progress
* New inventions or new ways to perform a task.
* Technological progress – an increase in efficiency
gained by producing more output without
using more inputs.
Gross Domestic Product
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In most modern economies, the amount of physical
and human capital changes all the time.
So does the quantity and quality of labor and the
technology used to produce goods and services.
These interconnected variables work together to
economic growth.
Gross Domestic Product
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Causes of Technological Progress.
1.
2.
3.
Scientific Research
New and improved production
Innovation
Successful products or ideas improve output
Patents
Scale of the Market
Larger markets provide more incentives for
innovation
Gross Domestic Product
4.
Education and Experience
5.
Natural Resource use
Can create a need for new technology.
Can turn previously useless raw materials
into usable resources.