Understanding GDP: a Key Indicator of Economic Health

1. G to the D to the P What’s that? GDP

2. Gross Domestic Product (GDP) • There are three parts to the definition: • Dollar value on FINAL GOODS. • Products made WITHIN the country’s borders. • Made in ONE CALENDAR YEAR. Why do we care?—this figure measures how well our economy is doing. GDP up—economy up  GDP down—economy down. 

3. GDP or Not GDP—That is the Question • A 2008 Harley Davison motorcycle sold in Kansas City. • Tickets to a Dave Matthews Concert in Chicago. • A battery for an iphonemanufactured in Atlanta. • A 2011 Chrysler 200 made in Vancouver. • A Versace dress sold in New York. • An antique wedding ring sold in Dallas.

4. Two Ways to Calculate GDP Expenditure Approach Income Approach • Add up the amount spent on the following: • Consumer goods and services. • Business goods and services. • Government goods and services. • Net imports and exports of goods and services. **More practical approach • The selling price of products represents the income of all those who made the product. • Combine everyone’s income and you have GDP. **More accurate approach

5. Measuring GDP Nominal GDP Real GDP • GDP measured in current prices. • GDP measured using constant, unchanging prices. • Eliminates the effects of inflation.

6. Shortcomings of GDP—Good effort…but no. • GDP cannot account for: • Nonmarket activities: things you do for yourself—mow the lawn, watch your children. • The underground economy: activity on the black market is never reported. • Negative externalities • Quality of life

7. GDP—More than meets the eye • Many more measures of output can be derived from GDP: • Gross National Product • Net National Product • National Income • Personal Income • Disposable Income