GDP The Strength of the National Economy. GDP GDP—Gross Domestic Product… Is used to compare the US’ economy with that of other nations… And to compare.

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GDP The Strength of the National Economy

GDP GDP—Gross Domestic Product… Is used to compare the US’ economy with that of other nations… And to compare our economic strength year-to year. The GDP is the total dollar value of all final goods and services produced within a country during one calendar year. Per Capita GDP—the average amount produced by each citizen in a year.

US GDP in 2007: $13,750,000,000,000 Per Capita GDP: $46,000

Calculating the GDP Measures “final output” ONLY. Which of these would be counted in the GDP?  A. A tree cut by a woodcutter who sells it to a lumber yard.  B. The lumber bought by the lumber yard who then sells it to a furniture manufacturer.  C. A table made by the manufacturer now sold to a couple in Detroit, Michigan.

Calculating the GDP Only products produced in the current year are measured. Which of the following was used in the calculation of the GDP in 1999?  A computer manufactured in 1998 but sold in  A used 1993 Toyota that was sold to Ms. Simpson in Memphis in  A Ford F150 produced in 1999 but sold in 2000.

Limits of the GDP It counts produced within national borders only. It counts produced within national borders only. Would this include or exclude Coca- Cola (a U.S. company) produced at a plant in Russia? Would this include or exclude Coca- Cola (a U.S. company) produced at a plant in Russia? How about a Toyota Tundra made at a factory in Kentucky? How about a Toyota Tundra made at a factory in Kentucky?

The GDP Formula GDP= C+I +G+ (X-M) C= Consumer goods. This includes all durable goods (a lifetime of more than one year)… Non-durable goods (a lifetime of less than one year), and… Services. Services.

GDP= C+I +G+(X-M) I= Gross Investment. This is the total value of all capital goods produced during one year. I= Gross Investment. This is the total value of all capital goods produced during one year. Gross investment includes: Gross investment includes: Physical capital (tools, factories, etc.)…and… Physical capital (tools, factories, etc.)…and… Human capital (hiring workers, paying for workers to be trained, etc.) Human capital (hiring workers, paying for workers to be trained, etc.)

GDP= C+I +G+(X-M) G=Government purchases. Government spending… Schools, highways, national defense, etc. X=Net Exports. Goods and services PRODUCED HERE but sold in other countries. M=Net Imports. Goods and services produced in other countries, but bought HERE.

Nominal vs.Real GDP Nominal GDP-GDP measured in current prices. Real GDP-GDP expressed in constant prices after inflation (price increases) have been removed.