Chapter 12 Gross Domestic Product and Growth

Gross Domestic Product Goods and services produced within the borders of a country Geography-not citizenship

Who cares about GDP? Its unreliable!!!

Non-market activities are NOT countedcannot be measured as they are not sold in a market

Illegal Business Activities are not counted because they are illegaleven though they are sold in a market and are measurable

Unreported Sales

Things that dont last long (non-durable goods) Durable goodsthings that last at least three years

Disasters and Wars increase GDP but are not necessarily beneficial

Intermediate goods and services are not counted in GDP

Only FINAL goods and services are counted!

GDP also does not include: Second hand salesthough salesmans commission does count Second hand salesthough salesmans commission does count Public/Private transfer payments Public/Private transfer payments Purely financial transactionsbut brokers fees count Purely financial transactionsbut brokers fees count

Expenditures Approach GDP=C+I+G+Xn Consumption spending (consumers)65% Consumption spending (consumers)65% Investment spending (business)15% Investment spending (business)15% Government spending(government)15% Government spending(government)15% Net exports(trade) 5% Net exports(trade) 5%

Consumption

Investment

Government Spending

Exports-Imports=net exports

Since GDP is based on prices we must adjust for inflation of current prices Nominal vs. real GDP

GDP is measure of economic health of a nation

Business Cyclevisual representation of the ups and downs of an economy

Parts of a Business Cycle

Business Cycles reflect the increases/decreases of GDP …was originally thought to be a natural occurrence

The idea that government should not get involved in the economy changed during the Great Depression

John Maynard Keynes Encouraged government spending to offset the decrease in consumption and investment spending during the Great Depression

Government spending serves as a counter-weight IT KEEPS THE ECONOMY IN BALANCE

GDP is not a measure of the quality of life

High Stress = high GDP

Low stress = low GDP

GDP per capita GDP divided by population

Nations by GDP per capita Liechtenstein $118,000 Liechtenstein $118,000 Qatar $111,000 Qatar $111,000 Luxembourg $ 81,200 Luxembourg $ 81,200 Bermuda $ 69,900 Bermuda $ 69,900 Norway $ 59,900 Norway $ 59,900 Kuwait $ 57,500 Kuwait $ 57,500 Jersey $ 57,000 Jersey $ 57,000 Singapore $ 51,600 Singapore $ 51,600 Brunei $ 47,500 Brunei $ 47,500

#10 United States United States $47,500 $47,500

Lowest GDP per capital Afghanistan$800 Afghanistan$800 Malawi 800 Malawi 800 Cent. Afr. Rep. 700 Cent. Afr. Rep. 700 Niger 700 Niger 700 Eritrea 700 Eritrea 700 Guinea-Bissau 600 Guinea-Bissau 600 Somalia 600 Somalia 600 Liberia 500 Liberia 500

Burundi$300 Burundi$300 Congo$300 Congo$300 Zimbabwe$200 Zimbabwe$200

Other GDPs per capita 37 Japan$34, Japan$34, Israel 28, Israel 28, Mexico 14, Mexico 14, Russia 16, Russia 16, China 6, China 6, Iraq 3, Iraq 3, India 2, India 2,900

Low GDP does not mean a nation is lazy It means they have few factors of production!

Factors of Production Land Land Labor Labor Capital Capital Entrepreneurship Entrepreneurship