Gross Domestic Product

1. Gross Domestic Product Unit 4 Macroeconomics

2. How Can We Measure Economic Growth? • Gross Domestic Product (GDP) – dollar value of all goods and services produced in the country’s borders in a year

3. Calculating GDP Includes • Products made inside a country by the country’s residents • Even if the parent company or headquarters is in another country • Products sold to consumers

4. Calculating GDP Does not include • Intermediate goods used to make the final good • Tires or radios to be installed in automobiles in the factory • Nonmarket Activities • Bartering • Doing favors for people • Producing your own goods

5. Underground Economy • Black markets • Drug dealing • Gambling • Products made by American owned companies produced in other countries • Secondhand items

6. GDP does not Measure • Quality of Life • Personal safety • Leisure time

7. How to Calculate GDP • The Expenditure Approach • add together final value of all goods and services

8. Formula for Expenditure Approach • C + I + G + (X-M) = GDP • C is Consumer spending • I is Business investments • G is Government spending • X is Exports • M is Imports

9. U.S. current GDP = $18.57 Trillion (#1 in the World)

11. Nominal vs. Real GDP • Just because GDP is higher, it does not mean the economy is necessarily better • GDP is usually calculated by using current prices • Nominal GDP • Problem: Inflation would cause GDP to rise, which would indicate economic growth falsely

12. Real GDP • Compares current production to past production using constant prices • Adjusted for inflation

13. Per Capita GDP • Measures economic output per person

14. GNP • Gross National Product • GNP measures output of American businesses anywhere in the world, rather than output within the United States • Doesn’t help measure success of economy… more a measure of national economic power abroad