Gross Domestic Product Christina Causey & Paul Ingram AP Macroeconomics December 13, 2004

Expenditures Approach: Y=C+I+G+(X-M) “total market value of all final goods and services produced during a year in the United States” GDP:

Consumption: expenditures by households on goods & services Investment: expenditures by firms on capital goods Expenditure Approach +

+ Government Spending: expenditures by all government bodies on goods & services + Net Exports: exports minus imports

What’s not included in GDP?  Illegal Transactions  Used Goods  Intermediate Goods

 Homemade Goods/Services  Unrecorded Payments  Transfer Payments

 Stocks & Bonds  Goods produced last year, sold now

U.S. vs. R.O.W. Total 2003 GDP (Worldbank) U.S. has the highest GDP… by a lot. Per capita, Luxembourg beats us bad, unsurprisingly (darn banking), and Bermuda, the Caymans, and Switzerland are right behind us (naturally); Norway is third. Like, double Japan’s. RankingEconomyMillions USD 1United States10,881,609 2Japan 4,326,444 3Germany 2,400,655 4United Kingdom 1,794,858

Nominal GDP vs. Real GDP Basic Difference: nGDP is the value of goods & services at current prices; rGDP is value at constant prices, adjusted for inflation using a base year. Thus, rGDP is more useful in judging economic growth. Example: apples for $1 each, 2 oranges for $2 each nGDP=(3x1)+(2x2)=$ apples for $3 each, 1 orange for $6 nGDP=(4x3)+(1x6)=$18 rGDP(2000 base yr.)=(4x1)+(1x2)=$6 rGDP shows that economy didn’t produce more; inflation simply caused prices to increase.

How useful is GDP? GDP is primarily useful in comparisons between nations, and it is the most useful tool we have for judging the well-being of the nation. A higher GDP means the people are better able to provide things such as health care.

Since per capita GDP is only an average, it cannot determine whether the people are all fairly well-off or if there’s a lot of money owned by a few people. How useful is GDP?

It doesn’t consider things like: A) leisure time B) environmental quality C) things such as illegal activity It is not completely accurate. GDP is good for general info on a nation’s well-being, but it should not be relied upon completely. How useful is GDP?

Other Methods of Accounting  CPI  PPI  DI  PI