GDP Expenditures: What Is GDP and How Do We Measure It?

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Presentation transcript:

GDP Expenditures: What Is GDP and How Do We Measure It? © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

Gross Domestic Product (GDP) GDP: The total market value, expressed in dollars, of all final goods and services produced in an economy in a given year. © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP GDP: The total market value, expressed in dollars, of all final goods and services produced in an economy in a given year. The value of goods and service is determined by the prices paid by the end users. The total of these prices is the total value of GDP. U.S. GDP is measured in U.S. dollars. © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP GDP: The total market value, expressed in dollars, of all final goods and services produced in an economy in a given year. “Final” refers to goods and service sold to end users. These goods and services have been purchased for final use and not for resale or further processing. GDP does not include intermediate goods, which are man-made goods used to produce other goods or services, becoming part of those goods or services. Excluding intermediate goods helps to avoid double counting. © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP GDP: The total market value, expressed in dollars, of all final goods and services produced in an economy in a given year. A good or service must be produced within the borders of the United States to be counted in U.S. GDP. Getting this count correct requires a little accounting (covered later). © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP GDP: The total market value, expressed in dollars, of all final goods and services produced in an economy in a given year. GDP data are released quarterly (every three months). © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

Real GDP Real GDP: GDP adjusted for inflation to hold prices constant over time.

GDP and the Business Cycle Business cycle: The fluctuating levels of economic activity in an economy over a period of time measured from the beginning of one recession to the beginning of the next. Economic expansion: A period when real GDP increases; a period of economic growth. Economic contraction: A period when real GDP decreases; a period of economic decline. Recession: A period of declining real income and rising unemployment. It is a significant decline in general economic activity extending over a period of time. © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP = C + I + G + (X  M) GDP: The total market value, expressed in dollars, of all final goods and services produced in an economy in a given year. © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP = C + I + G + (X  M) Personal consumption expenditures (C): Spending by households on newnot usedgoods and services. Usually make up over two-thirds of GDP spending.

GDP = C + I + G + (X  M) Gross private investment (I): Spending by businesses on machinery, factories, equipment, tools, and construction of new buildings. © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP = C + I + G + (X  M) Government purchases (G): Spending by all levels of government on goods and services, including spending on the military, schools, and highways. Does not include spending on transfer payments, such as Social Security payments. © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP = C + I + G + (X  M) © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP = C + I + G + (X  M) Exports (X): Resources, goods, or services that are produced domestically but sold abroad. Includes final goods and services and intermediate goods. © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP = C + I + G + (X  M) Include spending on both domestic and foreign goods and services. Gross domestic product (GDP): The total market value, expressed in dollars, of all final goods and services produced in an economy in a given year. Domestic: Inside a particular country. Imports (M): Goods or services produced abroad but sold domestically. © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP = C + I + G + (X  M) Imports (M): An accounting variable subtracted with the intent of correcting for the value of spending already counted as C, I, or G but actually spent on imported goods. Includes intermediate goods © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

GDP = C + I + G + (X  M) The balance of trade: (Exports  Imports) © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.

The Components of GDP GDP = C + I + G + (X  M) Personal consumption expenditures Government spending GDP = C + I + G + (X  M) Gross private investment Exports Imports The balance of trade: (Exports  Imports) © 2019, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in it’s entirety for educational purposes, provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.