Gross Domestic Product (GDP)  GDP is the market value of all final goods and services produced within a nation in a year  GDP is an aggregate measure.

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Presentation transcript:

Gross Domestic Product (GDP)  GDP is the market value of all final goods and services produced within a nation in a year  GDP is an aggregate measure of the economy

Cartogram map showing other countries’ GDP relative to U.S. States

GDP vs. GNP Until the 1990’s, Gross National Product (GNP) was the federal measure of the economy. GNP=Measure of the value of all goods & services produced by US owned firms whether domestically produced or manufactured abroad.

GDP & the Quarter System  GDP is officially measured in “quarters” of years: Quarter 1 = Jan/Feb/Mar Quarter 2 = Apr/May/June Quarter 3 = July/Aug/Sep Quarter 4 = Oct/Nov/Dec

Measuring GDP  The Expenditure Approach (aggregate spending) C + Ig + G + Xn = GDP (nominal)

Consumption (C)  Consumer spending on  Durable goods (cars, appliances…)  Non-durable goods (food, clothing…)  Services (plumbing, college…)  Consumer spending is the largest component of U.S. GDP.

Gross Private Investment (Ig)  Spending in order to increase future output or productivity  Business spending on capital  New construction  Homes  Commercial Real Estate Development  Change in unsold inventories

Government Spending (G)  All levels of government spending on final goods and services and infrastructure count toward GDP.  Government transfer payments do not count toward GDP.

Net Exports (Xn)  Exports – Imports  X – M  Exports create a flow of money to the United States in exchange for domestic production.  Imports create a flow of money away from the United States in exchange for foreign production.

The Income approach r + w + I + p = GDP (nominal) Rent + wages + interest + profits or… The Factors of Production… Yeah this exists…

2 more things  Nominal vs. Real GDP  Nominal is not adjusted for inflation  Real is  GDP per capita  GDP per person  Considered a better measure of economic wellbeing

What does not count…  Used goods/Second-Hand Goods  Gifts or ‘Transfers’ (private or public)  Stock/Equity/Security purchases (Places like NYSE or NASDAQ)  Unreported Business Activities conducted in “cash” (ex. Unreported tips…)

What does not count… cont.  Illegal activities (Black Markets)  Financial Transactions between banks and Businesses  Intermediate goods (no double counting)  Non market activities like volunteer and family work