Gross Domestic Product Also known as GDP

Before We Begin aggregate demand (AD)- the total demand for final goods and services in an economy at a given time. aggregate supply (AS)  the total supply of goods and services available to a particular market

Gross Domestic Product (GDP) The Market Value of all final goods and services produced in a country in a year If someone buys a brand new car in 2004 and then sells it in 2008 which year does that car count towards GDP? If a good is produced in Russia and bought in the U.S. does it count towards GDP?

Gross Domestic Product (GDP) Final Goods and services have been purchased for final use. They are not for resale or further manufacture? Lumber used to build a house? Steel used to build a car? New School building?

Gross Domestic Product (GDP) Economist often measure GDP by totaling the money spent on four major categories of goods and services C-Consumption (Consumer Spending) I-Investment (Spending by Businesses) G-Government (Spending by government) (X-M)-Net Exports (exports-imports)

Gross Domestic Product (GDP) C-Consumer spending -Spending by households on goods and services. Includes spending on things such as cars, food, and visits to the dentist. Makes up 2/3 of GDP (largest)

Gross Domestic Produce GDPs I- Investment, business, industrial spending. Spending by businesses on machinery, factories, Equipment, tools, and construction of new buildings

Gross Domestic Product (GDP) G- Government spending Spending by all levels of government on goods and services. Includes spending on the military, schools and highways

Gross Domestic Product (GDP) (X-M) Net exports Exports minus imports Spending by people abroad on U.S. goods and services (exports) minus spending by people in U.S. on foreign goods and services (Imports or M)

Gross Domestic Product (GDP) In other words: exports is when other countries buy our stuff imports when we buy their stuff Net Exports is always negative for U.S. Imports decrease GDP, Exports increase it To find GDP, use this formula: GDP=C+I+G+(X-M)

Try it out Due to tax cuts, consumers buy more new cars Worried about an increasing budget deficit, the government decides to buy fewer military planes Increasing prices in the U.S. encourage Americans to buy more foreign goods Due to tax increase, consumers spend less on vacation travel

Try it out Due to increased incomes, Europeans buy more U.S. goods and services A foreign government imposes a tariff that discourages its citizens from buying goods from the U.S. Businesses are optimistic about the future and increase construction of new factories

Try it out Decreases in interest rates encourage businesses to take out loans to construct To fight unemployment, the government decides to hire more people to work in national parks Tax cuts to businesses give businesses incentives to buy more computers To stimulate the economy and provide jobs, the government builds more bridges in California

Gross Domestic Product GDP The formula for GDP is known as “The Output Expenditure Model.” Think of if like you would the like a formula in math or science Output Expenditure model is GDP=C+I+G+(X-M)

GDP Per Capita GDP Per Capita-Per capita GDP is sometimes used as an indicator of standard of living as well, with higher per capita GDP being interpreted as having a higher standard of living GDP Per Capita=GDP/Population

GDP Per Capita High GDP’s per capita usually represent a high standard of living. It has been shown that countries with high GDP’s per capita usually have High life expectancy, high literacy rates, and low infant mortality rates

GDP PER CAPITA Discussion question- Does high literacy rates lead to higher GDP Per capita or does high GDP per capita lead to High literacy rates?

GDP Practice All values are billions Reminder GDP=C+I+G+(X-M)

Takeaways What is the Output expenditure model? What are the categories of GDP? Be able to identify what category an expenditure would fit in. Be able to identify GDP Per capita What are the biggest categories of GDP How is it calculated What does GDP Per capita say about a country?