GDP

1.What do you think is the richest country in the world today? 2.How do you think economists should measure a country’s wealth? We will take some notes today

Microeconomics – study of individuals and the economy Macroeconomics – study of large organizations and countries and the economy Finance – study of investment and credit

Gross Domestic Product A measure of a country’s economy is the market value of all officially recognized final goods and services produced within a country in a year, or other given period of time

GDP All consumer spending within a country in a certain year, month or quarter

GDP All private investment within a country in a certain year, month or quarter In Other Words: (saving)

GDP All net exports from a country in a certain year, month or quarter Exports = goods shipped to other countries Imports = goods brought into a country from another country

GDP All government spending in a country in a certain year, month or quarter Examples: education, military, welfare, social security, roads, healthcare, etc

GDP 2 ways GDP might be misleading? -malinvestment: poorly chosen assets that will not be needed in the future -environmental degradation: destruction of ecosystems, depletion of resources GDP does not take into account any of these.

GDP per capita Population measuring: –Divide GDP by population –is often considered an indicator of a country's standard of living –GDP per capita is not a measure of personal income instead GDP per capita exactly equals the gross domestic income (GDI) per capita –Gross Domestic Income (GDI) is the total income received by all sectors of an economy within a State. It includes the sum of all wages, profits, and taxes, minus subsidies.

List by the United Nations (2012)

GDP per capita $s Luxembourg Vietnam1 755 United States51 749Germany Norway99 636Italy Ireland45 951Spain Switzerland78 928Korea United Kingdom38 920Czech Republic Canada51 206Hungary Australia67 442Slovak Republic Sweden55 042Poland Japan46 731Mexico9 749 France39 772Turkey Source: Worldbank, 2012 edition

GDP Calculation Y = C + I + E + G where Y = GDP C = Consumer Spending I = Investment E = Exports - Imports G = Government Spending

United States GDP 2003 Y = C + I + E + G $$ in Billions Consumer Spending = $7605 Investment = $1606 Exports = $1021 Imports = $1508 Government Spending = $2017 $ ( ) = $10,741 (2003)

Netherlands GDP 2003 Y = C + I + E + G $$ in Billions Consumer Spending = $400 Investment = $104 Exports = $339 Imports = $305 Government Spending = $131 $ ( ) = $669 (2003) Per capita: 669,000,000,000/16,000,000 = $41, million Dutch citizens 3. Calculate the GDP for the Netherlands 4.Calculate the GDP/capita 5.How can GDP be a limited measurement?