Macroeconomic Indicators GDP and what it really means! GDP of various countries around the world! What do you notice?

Gross Domestic Product  The market value ($) of all final goods and services produced within a country in a given time period.

Final vs. Intermediate  Final good or service (included)  A good or service that is produced for its final user and not as a component of another good or service.  Intermediate good/service (not included) A good or service that is produced by one firm, bought by another firm, and used as a component of a final good or service.

What’s in GDP? Included  Final goods and services only! Not Included  Secondhand sales Ex. Used clothes, used cars  Intermediate goods Ex. Lead used in pencil  Chores around home Ex. Raking leaves

Do any of these count towards GDP? 6s 6c

Calculating GDP Expenditure Method  Expenditure Method: When we add up all of the components of the Product Market we can calculate GDP.

GDP per Capita (person) Most meaningful measure Divide Real GDP by population

GDP per capita: China v. US What is GDP/capita for each country? Why might people in China still not be so bad off despite lower GDP/capita?

Formulas 1. GDP: 1. Total Product A + Total Product B (Quantity A x Price A) + (Quantity B x Price B) 2. GDP per capita: 1. Total GDP/Population

Let’s try calculating GDP… Country A $20 each $100 each $ people # of pencils made/ price # of I- pods made/ price # of Amer. Girl dolls made/ price Total Popula- tion Total$$$$ /per capita

How well does GDP measure the welfare of a society (standard of living)? What items are not included?  Non-market transactions Housework, Self-repairs, Bartering  Quality of products  Composition of Products Ex. If country only produces tanks, GDP doesn’t care  Underground economy Informal Economy  Tips, babysitting, golf caddying Black market economy

Practice time! 1. Gibsonvania only produces neckties. They produce 100,000 ties and sell each one for $75. Calculate GDP. 2. There are only 1,576 people living in Gibsonvania. Using your answer from #1, calculate GDP per capita. 3. Company A is offering $184 for $75. Company B is offering $302 for $150. Which company should I invest in? Show me why. 4. Which of the following count towards GDP? 1. A Pre-Owned Car 2. A Never Used Skateboard bought at a yard sale 3. A New Keychain 4. A Gift Certificate given as a holiday gift