Download Gross Domestic Product

GDP
Gross Domestic Product
GDP=C + I +G + (X-M)
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Economics, Unit: 06 Lesson: 01
Gross Domestic Product
Dollar value of all final goods and
services produced within a
nation’s borders in one year.
* GDP measures Aggregate “total”
Spending, Income and Output
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Economic growth is one of the
major goals of U.S.
• Economic growth - increasing production
of goods and services
• To do this, we must use our productive
resources wisely and efficiently.
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How is GDP determined?
-GDP combines spending of the 3
sectors within the national economy
including households (consumer
spending), business firms
(investment), and the government
(government spending)
-GDP also calculates international
trade (exports and imports) as a
contributing factor
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GDP=C + I + G + (X-M)
C = Consumer Spending on
- durable goods (cars, appliances…)
- non-durable goods (food, clothing,…)
- services (plumbing, college…)
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GDP=C + I + G + (X-M)
I = Investment (business) spending on
capital goods
- Spending in order to increase future
output or productivity
(new construction, new inventories, etc.)
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C + I + G + (X-M) =
GDP
G = government spending
*government transfers DO NOT count toward GDP
- All levels of government spending on final goods and services
and infrastructure count toward GDP.
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C + I + G + (X-M) =
GDP
•Exports – Imports
•X-M
•Exports create a flow of money to the United States in
exchange for domestic production.
•Imports create a flow of money away from the United
States in exchange for foreign production.
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C + I + G + (X-M) =
GDP
• C = consumer spending
• I = investment (business)
spending
• G = government spending
• (X-M) = net export (exports imports)
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GDP
70%
60%
50%
Consumers
Business-I
Government
Foreign
40%
30%
20%
10%
0%
-10%
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If below zero, it
means there are
more imports than
exports
Foreign =
Net Export
Not included in GDP:
- GDP counts all final, domestic
production for which there is a market
transaction in that year.
Used and intermediate goods* are not
counted in order to avoid doublecounting.
*Goods used in the production of another good (We
wait and count the final product).
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Cost of denim fabric not counted
Instead, we count the value of the
finished product, jeans.
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not counted
New Goodyear
Tires
not counted
New Stereo
NEW TRUCK or final product
counted in GDP
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Used products These products were counted the year they
were made so we will not count them again
this year or the year it was purchased. For
example, if you buy a used car, just 1 year
old with only 10,000 miles, it is not counted in
this year.
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Non-market activities
• These are activities that a person does
themselves such as painting your house
instead of hiring a painter.
(i.e. babysitting for the neighbor)
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Illegal market
• This includes all of the underground “black
market economy or illegal transactions.
Such as:
• gambling
• drugs
• stolen property
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Financial Transactions
• This includes things like stocks and bonds.
Nothing is produced; just paper showing a
claim of some sort, not a good or service.
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Gifts or Transfer
• You receive money for your birthday, or
pay taxes or pay child support. Nothing is
produced; simply transferring money from
one group to another
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Different Types of GDP
• Nominal GDP: no adjustment for inflation
(“current” dollar value used).
• Is “current” GDP measured at current market
prices. May overstate the value of production
because of inflation.
• Real GDP: adjusted for inflation (converted to
base year prices). Measured with a “fixed dollar”
that is held constant & is useful for making year to
year comparisons. THIS IS THE IMPORTANT
ONE!!!!
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GDP & GNP
• GNP – Gross National Product: all goods
& services produced by a nation’s citizens
inside and outside of borders.
• GDP – Gross Domestic Product: all final
goods & services produced within a
nation’s border during a year
©2012, TESCCC
Limitations of GDP
1.
2.
3.
4.
•
Non-market activities
The underground economy
Negative externalities
Quality of life
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