GDP Facts

1. GDP Facts • GDP is called the single best measure of economic well-being. • GDP measures both the economy’s total income and expenditures. • Because most people would prefer to receive higher incomes and enjoy higher levels of spending, GDP seems a natural measure of economic well-being. • But the validity of GDP as a measure of societal well-being can be disputed on several points.

2. GDP IS NOT A PERFECT MEASURE • Does not include the value of leisure time. • Does not include value of labor done at home or on a volunteer basis. • Excludes any measure of the quality of the environment. • Does not account for the unequal distribution of income. • May overstate incomes because of inflation

3. Nominal GDP versus Real GDP • We use GDP to evaluate whether or not our economy is growing. • If we produce more goods and services this year than last year we can conclude that we are growing and that incomes are increasing. • Because GDP is measured by adding up our spending on output (PRICE X quantity) this is not always clear since prices tend to rise from year to year.

4. Nominal GDP versus Real GDP • Nominal GDP is the dollar amount we spent this year on goods and services. • It is found by multiplying output bought at current price level. • If we have inflation or produce more nominal GDP goes up.

5. Real GDPis corrected for the effects of inflation. • It is found by multiplying output bought at a constant price level. • If Real GDP has increased then output has increased.

6. Real GDP per Capita • An even better measure of economic well-being is GDP per capita (total GDP / total population) • China’s total GDP is $9.24 trillion • United Kingdom’s total GDP is $2.94 trillion • Whose citizens are better off? • GDP per capita in China = $11,850 ppp • GDP per capita in UK = $46,244 ppp