Download GDP Notes

Unit 3
Measurement and
Fiscal Policy
1
Table of Contents
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Unit Three Warm Ups
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GDP
Measuring the Economy
Date last updated: September 10, 2012
Federal Reserve Bank of San Francisco
Economic Education Group
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GDP
• Reading and circle key terms and underline
important information.
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Measuring the Economy
Measure a line you use=Ruler
 Measure your temperature

– Use a = Thermometer

Measure your weight=Bathroom scales

Measure the U.S. Economy=(GDP)
– Gross Domestic Product
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Gross Domestic Product

Gross Domestic Product (GDP)-The total
dollar value of all final goods and services
produced within a country during one
calendar year.
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Gross Domestic Product

Final Output—This is used to avoid counting
products more than once;
–
–
–
–
–
Ex. Woodcutter cuts down a tree ($100)
Sawmill processes into lumber ($200)
Furniture maker turns into table ($450)
Furniture dealer sells table for $750
Consumer purchases the table and the value of the
finished product is counted.
• What is the final value counted for GDP??
– $1450
– $750
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GDP – Did You Know?
Known As
• Gross Domestic Product
• National Output
• Measure of the Economy’s Health
• Three ways to measure national output:
Calculation
• Expenditure Approach: sum of goods and services sold
to final users (this is the most common approach)
• Income Approach: sum of income payments and other
costs incurred in the production of goods and services
• Value-Added Approach: sum of the value added at
each stage of production
Source: Bureau of Economic Analysis
Data
Reports
• The Bureau of Economic Analysis (BEA) is
responsible for calculating values of GDP
• The BEA publishes estimates on an annual and
quarterly basis
• The “advanced” estimates of GDP are released
roughly four weeks after the end of each quarter
(January, April, July, and October)
• “Revised” estimates incorporate more complete
and accurate source data
Real GDP (adjusted for inflation)
nearly doubled in value between
1980 and 2000. In 2010, real GDP
reached $13.1 trillion.
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Components of GDP
(Expenditure Approach)
[C]
[I]
[G]
[X]
Consumption
e.g., durables and nondurables
Investment
e.g., business investment in
equipment and factories
Government Spending
e.g., government purchases of
goods and services
13% [I] = $1.72
Net Exports
20% [G] = $2.56
e.g., U.S. exports to other
countries, less imports
-3% [X] = $-0.42
Sources: Bureau of Economic Analysis &
FRBSF Calculations
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FRBSF Economic Education Group
Gross Domestic Product
Current Year—GDP does not count products such as
used cars, second hand clothing, (already been
counted).
 Output Produced within our national borders.

– Ex. Coca Cola produced in Russia not included
– Does include foreign products made in this country.
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Adjusting GDP for Price Increases
• As prices increase, so does GDP. Therefore,
economists must calculate GDP in terms of
nominal and real prices
– Nominal GDP—Expressed in current prices of the
period being measured.
– Real GDP—Adjusted for price changes.
– Price Index—set of statistics that allows
economists to compare prices over time.
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U.S. Real GDP
by major spending category
Source: Bureau of Economic Analysis
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U.S. Real GDP by Quarter
Source: Bureau of Economic Analysis
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Annotated Chart Notes
U.S. Real GDP by Quarter
(Trillions of chained 2005 dollars, SAAR)
An inflation-adjustment
method using 2005 dollars as
the base year of comparison
Seasonally adjusted
annual rate
Grey bars indicate periods of economic
recession according to the NBER Business
Cycle Dating Committee
2012:Q2
$13.56
2009:Q2
$12.70
Source: Bureau of Economic Analysis
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Measuring Changes in GDP: Yearly % Change
Real Gross Domestic Product (GDP)
Q4/Q4 Percent Change
4
2
0
-2
-4
2000
2001
2002
2003
2004
2005
2006
2007
Source: Bureau of Economic Analysis & FRBSF Calculations
Note: Values are percent change using trillions of chained 2005 dollars (SAAR)
DataPost
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2008
2009
2010
2011
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Annotated Chart Notes
Measuring Changes in GDP: Yearly % Change
Real Gross Domestic Product (GDP)
Q4/Q4 Percent Change
The “Great Recession” is
the 18-month period between
Dec 2007 to June 2009,
according to the NBER
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% change from
2001:Q4 to 2002:Q4
2
0
Real GDP dropped more
than 3% between 2007:Q4
and 2008:Q4
-2
-4
2000
2001
2002
2003
2004
2005
2006
2007
Source: Bureau of Economic Analysis & FRBSF Calculations
Note: Values are percent change using trillions of chained 2005 dollars (SAAR)
DataPost
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2008
2009
2010
2011
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FRBSF Economic Education Group
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World GDP Leaders 2006
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•
•
•
•
•
•
United States $_13.202 Trillion
Japan $ 4.3 Trillion
Germany $ 2.9 Trillion
China $ 2.6 Trillion
UK $ 2.3 Trillion
Canada $ 1.2 Trillion
Mexico $ 839 Billion
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What do you think?
1. How has consumer spending changed since
1950? How have net exports changed since
1980? (See slide 4)
2. What was the lowest level of real GDP during
the Great Recession? (See slide 5)
3. How does real GDP growth in the Great
Recession compare to early 2000s recession?
(See slide 6)
4. Why is GDP considered a good measure of the
“health” of the economy?
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