Download Gross Domestic Product

Gross Domestic Product
GDP
GDP – total market value
of all final goods and
services produced in a
country in a given year.
Other GDP’s
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U.S. GDP $16.2 trillion
China – $8.2 trillion
Japan – $5.9 trillion
European Union –$16.5 trillion
Russia -$ 1.7 trillion
India - $4.04 trillion
Price is the only common
unit of measurement for
all of those goods and
services.
Two main problems with calculating
GDP are
a.
Inflation
b.
Double counting.
Products not counted in
GDP include:
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Intermediate goods
Second hand goods
Stocks and Bonds
Transfer payments
Two Methods of
Calculating GDP
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Expenditures Approach – add up all
money spent in a year.
Income Approach – add up all money
earned in a year.
Expenditures Approach
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GDP = C + Ig + G + Xn
C
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C = consumption or consumer spending.
Includes Durable Goods,
Non Durable Goods and Services
Ig

Ig = Gross Investment or business
spending. This includes all construction
spending and purchasing of capital goods by
business. Includes changes in inventory
G

G = government spending. All
purchases and activities of the
government. Does not include transfer
payments such as Social Security and
Unemployment checks.
Xn
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Xn = net exports or exports – imports
(X-M)
In the case of the U.S. this is a
negative number.
Shortcomings of GDP
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Does not account for non-market
transactions.
Does not take into account improved
product quality.
An economy is penalized for leisure
time.
Shortcomings (cont)
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GDP does not tell us if economy is
producing the correct mix of goods.
High GDP, hard on environment.
Underground economy not accounted
for.
Non-economic sources of well being
not counted.