GDP

1. GDP

2. Gross Domestic Product • Total market value of all final goods and services produced within the borders of a country in one year. • GDP is calculated as an indicator of the economy’s health. • Final goods and services are newly produced goods that have reached their final consumer; that is, they will not be resold to anyone else.

3. Final v. Intermediate Goods • Window glass in new automobiles • Dresses • Screws used in a cruise missile • Flour for making bread • Bread • Manicures • Lumber in a new house • Cruise Missile • New factory • Dresses • Cloth for making dresses

4. 3 Major Components of GDP • C=household purchases of consumer goods and services • G=government purchases of goods and services (ex: missiles, tanks) • I=purchases of businesses of capital goods, such as factories, tools, and new houses (investment) • *(Ex=Exports) • *(M=Imports) • C+G+I=GDP • C+G+I+ (Ex-M)=GDP

5. GDP Per CAPITA • GDP per person • C+I+G/Population Trade Surplus/Deficit • Trade Surplus-Exports are greater than imports • Trade deficit-Imports are greater than exports

6. What’s NOT counted in GDP? • 1. Nonmarket activities • Goods/services that people make or do themselves. • Ex: mowing your lawn, cooking dinner, babysitting your own kids, washing your own car • 2. The underground economy • “The Black Market” Where goods/services are bought/sold illegally. • Taxes are not paid on the exchange of these goods