Gross Domestic Product (GDP)  GDP is the market value of all final goods and services produced within a nation in a year  GDP is an aggregate measure.

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Presentation transcript:

Gross Domestic Product (GDP)  GDP is the market value of all final goods and services produced within a nation in a year  GDP is an aggregate measure of the economy

Measuring GDP  The Expenditure Approach (aggregate spending) C + Ig + G + Xn = GDP (nominal)

Consumption (C)  Consumer spending on new goods and services  Consumer spending is the largest component of U.S. GDP.

Gross Private Investment (Ig)  Business spending  Business spending on capital goods  New construction  Homes  Commercial Real Estate Development  Unsold stuff… (change in inventories)

Government Spending (G)  All levels of government spending on final goods and services and infrastructure count toward GDP.  Government transfer payments do not count toward GDP.

Net Exports (Xn)  Exports – Imports  We want to sell more than we buy… but we don’t

What does not count…  Used goods/Second-Hand Goods  Gifts or ‘Transfers’ (private or public)  Stock/Equity/Security purchases (Places like NYSE or NASDAQ)  Unreported Business Activities conducted in “cash” (ex. Unreported tips…)

What does not count… cont.  Illegal activities (Black Markets)  Financial Transactions between banks and Businesses  Intermediate goods (no double counting)  Non market activities like volunteer and family work

2 more things  Nominal vs. Real GDP  Nominal is not adjusted for inflation  GDP per capita  GDP per person  Considered a better measure of economic wellbeing