GDP

1. GDP Gross Domestic Product GDP=C + I +G + (X-M) Economics, Unit: 06 Lesson: 01

2. Gross Domestic Product * GDP measures Aggregate “total” Spending, Income and Output Dollar value of all final goods and services produced within a nation’s borders in one year.

3. 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.

4. How is GDP determined? -GDP combines spending of the 3 sectors within the national economy including households (consumer spending), business firms (investment), and the government (government spending)-GDP also calculates international trade (exports and imports) as a contributing factor

5. GDP=C+ I + G + (X-M) • C = Consumer Spending on • - durable goods (cars, appliances…) • non-durable goods (food, clothing,…) • services (plumbing, college…)

6. GDP=C + I+ G + (X-M) • I = Investment (business) spending on capital goods • Spending in order to increase future output or productivity • (new construction, new inventories, etc.)

7. C + I + G+ (X-M) = GDP G = government spending *government transfers DO NOT count toward GDP - All levels of government spending on final goods and services and infrastructure count toward GDP.

8. C + I + G + (X-M)= GDP • Exports – Imports • X-M • Exports create a flow of money to the United States in exchange for domestic production. • Imports create a flow of money away from the United States in exchange for foreign production.

9. C + I + G + (X-M) = GDP • C = consumer spending • I = investment (business) spending • G = government spending • (X-M) = net export (exports - imports)

10. GDP Foreign = Net Export If below zero, it means there are more imports than exports

11. Not included in GDP: - GDP counts all final, domestic production for which there is a market transaction in that year. Used andintermediate goods* are not counted in order to avoid double-counting. *Goods used in the production of another good (We wait and count the final product).

12. Cost of denim fabric not counted Instead, we count the value of the finished product, jeans.

13. not counted not counted New Goodyear Tires New Stereo NEW TRUCK or final product counted in GDP

14. 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.

15. Non-market activities • These are activities that a person does themselves such as painting your house instead of hiring a painter. (i.e. babysitting for the neighbor)

16. Illegal market • This includes all of the underground “black market economy or illegal transactions. Such as: • gambling • drugs • stolen property

17. 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.

18. 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

19. Different Types of GDP • Nominal GDP: no adjustment for inflation (“current” dollar value used). • Is “current” GDP measured at current market prices. May overstate the value of production because of inflation. • Real GDP: adjusted for inflation (converted to base year prices). Measured with a “fixed dollar” that is held constant & is useful for making year to year comparisons. THIS IS THE IMPORTANT ONE!!!!

20. 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

21. Limitations of GDP • Non-market activities • The underground economy • Negative externalities • Quality of life • http://www.learner.org/vod/vod_window.html?pid=2467