Download Goal 1: Define GDP and describe how it is measured

February 6, 2012
Goal 1: Define GDP and describe how it is measured.
Macroeconomics- is the study of the economy as a whole
and how major sectors of the economy interact.
Topics in Macroeconomics
-Economic Growth
-Recession
-Unemployment
-Inflation
-Poverty
-Income Distribution
-Role of Government
-National Debt
Review: One function of money is it is used as a
measuring tool.
National Income Accounting- is a way of evaluating a
country's economy using statistical measures of its
income, spending, and output.
-the most important measure in national income
accounting is Gross Domestic Product (GDP)
GDP 1 11-12 Per 8 Page 1
accounting is Gross Domestic Product (GDP)
Gross Domestic Product (GDP)- is the total dollar value of
all final goods and services produced within the boarders
of country over a certain period of time, usually a year or
1/4 of a year.
Three components of GDP
1. Products must be final, not intermediate
Example: Fabric for a shirt
2. The good or service must be produced within the time
period.
Example: Cars made this year, sold next year
3. Products must be made within a countries boarders
Example: Toyota's made in Ohio, GM in Mexico
How is GDP Measured??
-The most popular way to measure GDP is to look at how
much different parts of the economy spend, called the
expenditure approach
The Expenditure (Spending) Approach: add up all the
GDP 1 11-12 Per 8 Page 2
The Expenditure (Spending) Approach: add up all the
spending on final goods and services produced in a
country.
GDP Equation: GDP = C + I + G + X
Consumption ( C )- Includes all the spending by
households (consumers) on goods and services.
Durable Good- a good that lasts more than 3 years
Example: Car, Fridge, TV
Non-Durable Good-goods that are expected to last less
than 3 years.
Example: Food, Clothing, Toothpaste
Investment ( I )- includes all the spending of businesses,
has two categories.
Fixed Investment Includes:
-Resources, goods, or services bought by businesses to
produce other goods and services
-Purchases of machinery, equipment, and tools by
GDP 1 11-12 Per 8 Page 3
-Purchases of machinery, equipment, and tools by
businesses
-all construction (factories, warehouses, stores, houses,
apartment buildings)
Inventory Investment Includes:
-Includes products purchased to be held in inventory
-unsold goods that businesses keep
Government Spending ( G ) - includes all the spending of
federal, state, and local governments on goods and
services.
Examples: Defense, Highways, Education
**Does not include spending on welfare, social security,
and unemployment**
Net Exports ( X )- is the difference of exports and imports
in a country.
X=Exports - Imports
Export- is something that is produced in U.S. but
purchased in another country.
GDP 1 11-12 Per 8 Page 4
purchased in another country.
Import- is something that is produced in a foreign country
and purchased in the United States.
**X can be negative if the United States imports more
than it exports**
Exit Question: What part of GDP would spending by Mr.
Perry on new computers for the school be included? C, I,
G, or X)
GDP 1 11-12 Per 8 Page 5