Download Gross Domestic Product

Gross Domestic Product
GDP
GDP (or nominal GDP) is the dollar
amount of all final goods and services
produced within a country’s borders in a
year
I.
A.
B.
a measure of national output, or
production
Single most important measure of overall
performance
C. Current GDP is over $16.8 trillion



Japan has 2nd highest with $5.8 trillion
China comes in 3rd with $5.3 trillion
The only GDP higher than US is the combined
GDP of the European Union with $18.6 trillion
Calculating GDP
II.
A.
What’s not included
1.
Intermediate products

A product used in the manufacturing of a final product
2. Secondhand sales
– Garage sale tire?
– Swap meet tire?
3. Non-market transactions
– Nanny vs. Mom services
4. Underground economy (black market)
– Illegal, so unreported, so cannot be counted
B. Distortions to GDP
1. Inflation can make nominal GDP appear
to have grown when it hasn’t
a. Calculating GDP: Multiply price and the
amount of a product sold, added to every
other product’s calculation. If the number sold
increases, GDP would rightly appear to go up
b. But if price increased, GDP would incorrectly
appear to have increased also
c. Remember, GDP is the measurement of
national output, so inflation would create a
false impression
Both production and price increases have the same effect: higher GDP
What
would
to to
GDP
if production
inflation
increased
increased
to production
6 products
of GDP to
$6?
year?
But GDP
is happen
supposed
measure
national
outputinstead
, or
. per
Inflation, therefore, distorts nominal GDP
Wertopia
Population: 1
Factories: 1
Workers: 1
Number of products produced per year: 6
5
Price: $6
$5
GDP? $25
GDP: $30
GDP: $30
2. Real GDP (or GDP in constant dollars) is GDP
adjusted for inflation
•
•
distortions of price are removed from the calculation
leaving the REAL dollar value of all products produced
that year, or real GDP
3.
Population changes can also affect GDP
a. Country “A” has 5 producers, producing $500 worth
of goods and services a year
b. Country B has 500 producers producing $5 worth of
product a year
c. Which has a more productive population?
1) Country A
d. Economists solve the problem by dividing GDP by
the population, called GDP per capita
4.
5.
6.
Per capita GDP is GDP adjusted for population,
or is calculated on a per person basis
GDP per capita tells economists how much
each person in the economy can produce, or
the production capacity of the average worker
Real GDP per capita is GDP adjusted for both
inflation and population
Since GDP is a measurement of production, or the
QUANTITY of all final products produced within a
country’s borders in a given year, GDP is sometimes
shown on the QUANTITY axis of a S&D curve. Government
policy can influence GDP, as we will later see.
AS
Price
AD
GDP
III.
A.
Gross National Product (GNP)
Definition:
1.
2.
3.
4.
5.
A measure of a country’s economic performance
as measured by the dollar value of all final
goods and services produced by a country’s
citizens and citizen-owned capital whether
foreign or domestic
In other words, U.S. GNP measures the
production capacity of Americans here and
abroad
In one sense, GNP measures America’s income
Calculated by adding to GDP all U.S. citizen
production outside the U.S. and subtracting
foreign produced goods within the U.S.
A statistic not used much in recent years,
replaced in the 1990s by the more popular GDP
Questions
1.
2.
3.
4.
5.
6.
7.
8.
Define GDP
Define GNP
List those types of economic activity that are
NOT included in calculating GDP
How does inflation distort GDP?
What is nominal GDP?
What is real GDP?
What is per capita GDP ?
What is real GDP per capita?