GDP Chapter 13

GDP Gross Domestic Product Dollar amount of all final goods and services produced within a country’s national borders in one year.

Why we need it GDP helps tell us how the economy is doing. If GDP is low, then the economy is not doing very well. If GDP is high, then the economy is good.

How we compute GDP Multiply all of the final goods and services produced in a 12-month period by their prices, and then add them up.

Exclusions Intermediate Products Secondhand Sales Nonmarket Transactions Underground Economy

Intermediate Products Products used to make other products already counted in GDP. Example: Replacement tires for your car.

Secondhand Sales The sales of used goods. These things have already been counted in GDP and can’t be counted again.

Nonmarket Transactions Transactions that do not take place in the market. Can’t be measured. Example: Homemakers jobs at home: Cooking Cleaning Child care Etc.

Underground Economy Unreported legal and illegal activities. Examples: Gambling Smuggling Drugs Counterfeiting

Problems with GDP Don’t know what is included in GDP. Could be military stockpiles. Things in GDP may not actually be good for the world (only good for the economy). Building new homes could be harming the environment.

National Income Accounting A system of statistics and accounts that keep track of production, consumption, savings, and investments. Also tells us how the economy is performing.

GNP Gross National Product The dollar value of all final goods and services, and structures produced in one year with labor and property supplied by a country’s residents.

Differences from GDP GNP measures the income of all Americans but does not count in foreign made money.