Download What is gross domestic product (GDP)?

What is gross domestic
product (GDP)?
What is gross domestic product (GDP)?
Gross domestic product (GDP) is
defined as the sum of all final goods
and services that are produced
within a national border over a
specific time interval, typically one
calendar year.
What does (GDP) Measures?
Total income of a nation
A Nation’s economic well-being
Measure of a nation’s economic growth
from one period to the next.
Measures the dollar value of all final
goods and services produced within a
country’s border in a given year.
How Is GDP Measured?
What is gathered to measure the (GDP)?
The total value of expenditures (funds spent) on:
Consumption
Investments
Government Purchases of Goods and Services
Exports of Goods and Services
Imports of Goods and Services
Consumption (C)
$ amount of goods and services
purchased by household within
the allotted year.
Examples: Food, rent, jewelry,
vacations, computers, clothing,
haircuts, movies, gasoline etc.
cart
Consumption (C) is normally the largest
GDP component in the economy.
Not including the purchase of new housing
Also gifts not sold such as hand-knit sweaters
are not counted as part of GDP
Investment (I)
$ amount spent by business on
productive resources
Purchases of new homes by
consumers!
New machines, new factories, research
Investment (I) Don’t Include
Purchase of financial products, such as “saving”
as opposed to investments.
To avoid double-counting: if one buy’s shares in
a company, and the company uses the money
received to buy plant, equipment, etc., the
amount will be counted toward GDP when the
company spends the money on those things.
Government Spending (G)
$ amount spent on federal, state, and local
government provided goods and services.
Includes salaries of public
servants, purchase of weapons for the
military, and any investment by
the government.
Example: Roads, education,
military, parks, public libraries,
etc.
Government Spending not included
Payments, such as social security or
unemployment benefits.
Net Exports (X-M)
Exports (X) = Goods we ship to other countries
Imports (M) = Goods we bring in from other countries
Exports – Imports = Net Exports
GDP = C + I + G + (X-M)
If any one letter increases, ceteris paribus, GDP increases
C + I + G + (X-M)
Ceteris Paribus in Economics
Latin phrase that means “other things being equal.
Saturation of Cause and effect for an example: if the
price of beef increases, ceteris paribus people will
purchase less beef. In this situation, ceteris paribus
means that the possibility of other changes affecting
the sales of beef will not be considered. Other things
could happen that would keep the sales of beef the
same or even increase the sales of beef – for example,
the price of other meats could increase even more than
the price of beef increased, leaving beef as the
cheapest meat available.
Ceteris Paribus in Economics contain
Or the Centers for Disease control could announce
that eating beef prevents cancer, which would most
likely increase the sales of beef – but in this situation,
we only want to consider what happens if the price of
beef rises while keeping all other factors the same.
What’s not included in GDP?
Intermediate goods
Used goods
Underground production (black market)
Financial transactions
Household production
Transfer payments
What GDP does not tell us
Does not measure income distribution
Does not measure non-monetary output or
transactions (e.g., barter, getting paid under the
table)
Does not take into account desirable externalities
such as, leisure or environment.
Does not measure social well-being
(1991-1995) 15,517,926,000,000
(1996-2000) 16,163,158,000,000
(2001-2005) 16,768,053,000,000
(2011-2015) 17,419,000,000,000
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD
Other Vocabulary Terms
Economic Indicators:
Inflation Rate
Unemployment Rate
Gross Domestic Product
Inflation Rate
This indicator measures how rapidly the overall
price level is changing in the U.S. economy.
Unemployment Rate
This indicator measures the percentage of the
U.S. labor force that wishes to work, but are
currently without jobs.
Gross Domestic Product
(GDP)
This indicator measures the dollar value of all
final goods and services produced within a
country’s border in a given year.