Download Assume you are Dr. I.O. Many Bucks (Government`s Doc)

What economic “vital signs” will you
check?
One measure of good “health” is if the
economy is growing.
The government statistic (vital sign) that
best measures economic growth is…..
GDP----Gross Domestic Product
Gross Domestic Product
• The total dollar value of final goods and
services produced in a country in one year
• America’s GDP is …..
• Really big
• About 14 trillion dollars
• Wow!
• $14,000,000,000,000
• List of countries by GDP (nominal) Wikipedia, the free encyclopedia
• GDP - per capita (PPP) - Country
Comparison - TOP 100
• http://strangemaps.wordpress.com/2007/0
6/10/131-us-states-renamed-for-countrieswith-similar-gdps
Expenditure Approach
who buys the economic pie?
1. Consumers (almost
70%)
a. Durable goods
b. Nondurable
goods
c. Services (this is a
biggie)
d. there is no d 
II. Investment Spending (15%)
a.
b.
c.
d.
Machines
Factories
Houses
Inventory changes
III. Government
all levels (about 20%)
a. Defense spending
b. Road construction
c. Other government
projects (add C after
B  on your sheet)
IV. Foreign Nations
a. We want to count
exports
b. We don’t want to count
imports
c. Net Exports (Exports –
Imports) Xn
• (-5%)
• So, the expenditure
approach is..
• C + Ig + G + Xn = GDP
Cousins of GDP (stop here)
1.
2.
3.
4.
GNP
NDP
GDP – depreciation = NDP
What’s depreciation (aka. consumption of fixed
capital)?
• Repairing, maintaining, and replacing capital
5. Gross investment (Ig) expenditures include
depreciation expenses
6. Net investment spending does not
7. Ig – In = depreciation
SO WHAT DOES ALL THIS MEAN
TO YOU PERSONALLY?
• NOT MUCH
8. National Income
• All income earned by Americans
wherever they may be
9. NDP – net foreign factor income
- indirect business taxes
= National Income (NI)
Personal Income
10. Personal Income is all income received in
the home whether earned or unearned
11. Not all income is earned nor is all income
earned received by households
12. National Income – soc sec
-- corp income tax
-- undistributed corp profits
+ transfer payments
= Personal Income
13. Disposable Income
• This one is easy
• Personal income minus personal income
tax = disposable income (DI)
IMPORTANT POINT TO
REMEMBER
• THIS IS IN YOUR BOOK!
• WAGES, INTEREST, RENT, AND PROFITS
ARE ALSO INCLUDED IN GDP
CALCULATIONS BUT NOT IN THE
EXPENDITURE APPROACH (C+Ig+G+Xn)
• THEY ARE COUNTED IN THE INCOME
APPROACH
• If you are calculating GDP, ignore types of
income and just focus on expenditures