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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. ©2012, TESCCC 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. ©2012, TESCCC 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 ©2012, TESCCC GDP measures economic growth ©2012, TESCCC C + I + G + (X-M) = GDP Consumer spending + Investment + Government spending + (Exports – imports) = GDP ©2012, TESCCC C + I + G + (X-M) = GDP C = consumer spending ©2012, TESCCC C + I + G + (X-M) = GDP I = investment (business) spending on capital goods ©2012, TESCCC C + I + G + (X-M) = GDP G = government spending ©2012, TESCCC C + I + G + (X-M) = GDP ©2012, TESCCC (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) ©2012, TESCCC GDP 70% 60% 50% Consumers Business-I Government Foreign 40% 30% 20% 10% 0% -10% ©2012, TESCCC 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). ©2012, TESCCC Cost of denim fabric not counted Instead, we count the value of the finished product, jeans. ©2012, TESCCC not counted New Goodyear Tires not counted New Stereo NEW TRUCK or final product counted in GDP ©2012, TESCCC 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. ©2012, TESCCC 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. ©2012, TESCCC Illegal market • This includes all of the underground economy or illegal transactions. Such as: • gambling • drugs • stolen property ©2012, TESCCC 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. ©2012, TESCCC 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 ©2012, TESCCC 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 ©2012, TESCCC 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 http://www.learner.org/vod/vod_window.html?pid= 2467 ©2012, TESCCC