Download Gross Domestic Product

GDP
Gross Domestic Product
©2012, TESCCC
Economics, Unit: 06 Lesson: 01
Gross Domestic Product
Dollar value of all final goods and
services produced within a
nation’s borders in one year.
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Economic growth is one of the
major goals of U.S.
• Economic growth - increasing production
of goods and services
• To do this, we must use our productive
resources wisely and efficiently.
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How to use
Factors of Production Wisely
• Land or natural resources – don’t waste, but
conserve
• Labor or human resources – make sure
workforce has adequate training & education
• Capital goods/resources – save more and invest
more in capital goods
• Entrepreneurship – new business vital,
encourage entrepreneurs to start new business
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GDP measures
economic growth
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C + I + G + (X-M) =
GDP
Consumer spending + Investment +
Government spending + (Exports – imports)
= GDP
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C + I + G + (X-M) =
GDP
C = consumer spending
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C + I + G + (X-M) =
GDP
I = investment (business)
spending on capital goods
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C + I + G + (X-M) =
GDP
G = government spending
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C + I + G + (X-M) =
GDP
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(X-M) = net export
X= exports
M= imports
(exports – imports)
C + I + G + (X-M) =
GDP
• C = consumer spending
• I = investment (business)
spending
• G = government spending
• (X-M) = net export (exports imports)
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GDP
70%
60%
50%
Consumers
Business-I
Government
Foreign
40%
30%
20%
10%
0%
-10%
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If below zero, it
means there are
more imports than
exports
Foreign =
Net Export
Not included in GDP:
Intermediate goods:
Goods used in the production of another
good (We wait and count the final
product).
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Cost of denim fabric not counted
Instead, we count the value of the
finished product, jeans.
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not counted
New Goodyear
Tires
not counted
New Stereo
NEW TRUCK or final product
counted in GDP
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Used products These products were counted the year they
were made so we will not count them again
this year or the year it was purchased. For
example, if you buy a used car, just 1 year
old with only 10,000 miles, it is not counted in
this year.
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Non market activities
• These are activities that a person does
themselves such as painting your house
instead of hiring a painter.
You do not have a buyer
and a seller so you do not
have a market.
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Illegal market
• This includes all of the underground
economy or illegal transactions.
Such as:
• gambling
• drugs
• stolen property
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Financial Transactions
• This includes things like stocks and bonds.
Nothing is produced; just paper showing a
claim of some sort, not a good or service.
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Gifts or Transfer
• You receive money for your birthday, or
pay taxes or pay child support. Nothing is
produced; simply transferring money from
one group to another
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Different Types of GDP
• Nominal GDP: no adjustment for inflation
(current dollar value used)
• Real GDP: adjusted for inflation (converted
to base year prices)
• Real per Capita GDP: Real GDP
Population
– shows overall standard of living
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GDP & GNP
• GNP – Gross National Product: all goods
& services produced by a nation’s citizens
inside and outside of borders.
• GDP – Gross Domestic Product: all final
goods & services produced within a
nation’s border during a year
©2012, TESCCC
Limitations of GDP
1.
2.
3.
4.
•
Non-market activities
The underground economy
Negative externalities
Quality of life
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©2012, TESCCC