Download Gross Domestic Product

Economic Performance
• How do economists calculate
GDP?
• What are the limitations of GDP?
• What other stats do economists
use to measure the economy?
Gross Domestic Product
• Nation Income
Accounting
– To track production,
income, and
consumption in a
nation’s economy
– Used to measure
Nation income and
product amounts
Measuring Economic
Production
• Gross Domestic
Product (GDP)
– The total dollar
value of all final
goods and
services
produced within
a country during
one calendar
year.
• 3 components of
GDP
– Final Output
• Value of only the
final good and
services
– Woodcutter
– Current Year
• Only goods that
were produced
within that year
– Output Produced
within National
Borders
Output-Expenditure
Model
• The actual
formula used to
compute GDP
• Personal
Consumption
Expenditures (C)
– Consumer
purchases
• Gross
Investment (I)
– Total value of all
capital goods
produced in a given
nation during one
year as well as
change in the dollar
value of business
inventory
• Fixed investmentnon/residential
structures and
capital goods
• Inventory
Investment- I/D in
stock of raw
material
Output-Expenditure
Model
• Government Purchases (G)
– Total dollar value that federal,
state, and local governments
spend on goods and services
• Highways, education, and defense
• Net Exports (X-M)
– Includes exports and imports
• C+I+G+(X-M)=GDP
Adjusting GDP for Price
Increases
• As $ increases so
does GDP
• Nominal GDP
– Current GDP
expressed in the
current prices of the
period being
measured
• Real GDP
– Adjusted for price
changes
– Price Index- a
set of statistics
that allows
economists to
compare prices
over time.
Limitations of GDP
• Accuracy and
Timeliness of
Data
– Use of estimates
and sampling
techniques
• Non market
Activities
– chores
• Underground
Economy
• “Goods”
– Things that make
society better
are not reported
• “Bads”
– Things that make
society worse
are reported
Other National Income
and Product Accounts
• Gross National
Product (GNP)
– Measures the total
dollar value of all
final output
produced with
factors of
production owned by
residents of a
country during 1
year
Questions
• What are the main components of
GDP, and how are they determined?
• What are the limitations of GDP?
• How does GDP differ from GNP? What
are the main components of GDP, and
how are they determined?
• What are the limitations of GDP?
• How does GDP differ from GNP?