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Gross Domestic Product

Gross Domestic Product. Don't accept your dog's admiration as conclusive evidence that you are wonderful. What is the GDP?. Economists monitor the macro-economy using national income accounting , a system that collects statistics on production, income, investment, and savings.

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Gross Domestic Product

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  1. Gross Domestic Product Don't accept your dog's admiration as conclusive evidence that you are wonderful.

  2. What is the GDP? • Economists monitor the macro-economy using national income accounting, a system that collects statistics on production, income, investment, and savings. • Gross domestic product (GDP) is the dollar value of all final goods and services produced within a country’s borders in a given year.

  3. Final Goods Vs. Intermediate Goods • GDP does not include the value of intermediate goods. Intermediate goods are goods used in the production of final goods and services. Furniture Tree – intermediate good not counted in GDP Lumber – intermediate good not counted in GDP Chest – Final Good counted in GDP

  4. GNP • GNP = GDP + (Income earned outside of the US by US firms and citizens) – (income earned by foreign firms and foreign citizens located in the US)

  5. GNP vs. GDP Japan USA + U.S.A. GDP = + (In the U.S.) (In the U.S.) - U.S.A. GNP = (In the world) (In the U.S.)

  6. GDP Japan USA + U.S.A. GDP = + (In the U.S.) (In the U.S.)

  7. GNP Japan USA + - U.S.A. GNP = (In the world) (In the U.S.)

  8. GNP vs. GDP Japan USA + U.S.A. GDP = + (In the U.S.) (In the U.S.) - U.S.A. GNP = (In the world) (In the U.S.)

  9. GNP vs. GDP • GDP is all the final goods produced within the country’s borders where GNP is the total income earned worldwide by US firms

  10. How GDP is calculated: Expenditure Approach • Add up all of these expenditures: • consumer goods and services • business goods and services • government goods and services • net exports or import of goods and services Consumer goods include durable goods and nondurable goods

  11. Income Approach • Add together all the income of the workers and owners that make the goods and services • Ideally the expenditure approach and income approach should be equal.

  12. Nominal versus Real GDP • Nominal is the actual dollar value. However, $100 in 1900 is not the same as $100 in 2000. • Real takes into account inflation. A base year is established and all GDP values are calculated using the base year.

  13. Limitations of GDP Economic Activities that are not included in GDP • Nonmarket Activities like mowing your lawn • The underground economy; black market • Negative externalities: smoke stacks might have more production but cause more pollution • Quality of Life – taking a park and turning it into a mall would increase GDP

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