GDP

Unpacking the Standard SSEMA1 Illustrate the means by which economic activity is measured. Identify and describe the macroeconomic goals of steady economic growth, stable prices, and full employment. Define Gross Domestic Product (GDP) as the sum of Consumer Spending, Investment, Government Spending, and Net Exports (output expenditure model). Define real GDP, aggregate supply and aggregate demand and explain how each is used to evaluate the macro goal of economic growth.

What is Macroeconomics? Macroeconomics: the study of a nation’s entire economy GDP and Economic Growth Business Cycles Inflation Unemployment Monetary Policy Fiscal Policy

What are the Goals of Macroeconomics? Economic Growth – GDP Stable Prices – Inflation Rate Full Employment – Unemployment Rate

Gross Domestic Product: the dollar value of all final goods and services produced with in a country’s borders in a given year.

How Do We Calculate GDP? GDP = C + I + G + (X-N) Gov’t Spending Public Goods/Services: national defense, highways, edu. Consumer Spending Durable and nondurable goods: groceries, rent, cars, clothes, etc. Foreign Spending Exports – Imports Includes items MADE here and sold elsewhere (exports) DOES NOT include items made outside the US but sold here (imports) Business Investment Capital Goods: office space/items, equipment, labor

Nike buys a new computer system for all their stores Write #1-6 in your notes. For each example listed below, determine which part of GDP that purchase would belong in (C, I, G, X-n) You buy a new pillow Nike buys a new computer system for all their stores All potholes down Austell Rd are filled Owner of a hair salon sends stylists to learn a new dye technique You buy a new dress/suit for homecoming A French man orders a new TV off Amazon from a company based in the US. C I G X-n

What’s NOT Included in GDP? 1. Intermediate Products The raw materials (factors of production) that are used to make FINAL GOODS/SERVICES. Ex: the wood used to build a house. The wood will be included in the price of the house, so you don't include it's original purchase (you'd be counting it twice)

What’s NOT Included in GDP? 2. Secondhand Sales (used goods) Not included in GDP because it counted the FIRST time it was bought. Ex: You buy a video game at Wal-Mart. Two months later you sell it to Game Stop. They put it up for sale. It would already be counted in the GDP from the ORIGINAL sale (Wal-Mart)

What’s NOT Included in GDP? 3. Underground Production (black market) Includes illegal activities and “gray area” ones. Not included because no way to track. Ex. Cash only transactions that never get reported to the IRS: mowing lawns, babysitting, or unlicensed businesses working out of homes.

What’s NOT Included in GDP? 4. Financial Transactions Transfer payments: giving money from one group of people to another (social security, unemployment, welfare, etc) Security payments: income from sale of stocks and bonds 5. Household Production Nonmarket Transactions Not counted because you did it yourself instead of paying someone else to do it. Examples: You fix your IPhone yourself instead of paying someone to do it. You cook dinner instead of ordering pizza on a Friday night.

What’s NOT Included in GDP? 6. Not sold this year Something made, but not sold. Counted in the year sold. Examples: A Dell computer is made in 2014, but not sold until 2015. The computer would count towards GDP in 2015

You buy a used book off Amazon. Write #1-5 in your notes. Determine why each of the following would NOT be included in GDP (intermediate, secondhand, underground, financial, household production) You buy a used book off Amazon. You get paid $50 to babysit the neighbor’s kid. The leather used to make shoes for sell at Payless. You give your little brother a haircut. Your grandparents cash their social security check. Secondhand Underground Intermediate Household Financial