1. GDP Facts  GDP is called the single best measure of economic well-being.  GDP measures both the economy’s total income and expenditures.  Because most people would prefer to receive higher incomes and enjoy higher levels of spending, GDP seems a natural measure of economic well-being.  But the validity of GDP as a measure of societal well-being can be disputed on several points.

2. GDP IS NOT A PERFECT MEASURE  Does not include the value of leisure time.  Does not include value of labor done at home or on a volunteer basis.  Excludes any measure of the quality of the environment.  Does not account for the unequal distribution of income.  May overstate incomes because of inflation

3. Nominal GDP versus Real GDP  We use GDP to evaluate whether or not our economy is growing.  If we produce more goods and services this year than last year we can conclude that we are growing and that incomes are increasing.  Because GDP is measured by adding up our spending on output ( PRICE X quantity) this is not always clear since prices tend to rise from year to year.

4. Nominal GDP versus Real GDP  Nominal GDP is the dollar amount we spent this year on goods and services.  It is found by multiplying output bought at current price level. If we have inflation nominal GDP goes up.

5.  Real GDP is corrected for the effects of inflation.  It is found by multiplying output bought at a constant price level. If Real GDP has increased then output has increased.

6. Real GDP per Capita  An even better measure of economic well- being is GDP per capita (total GDP / total population)  China’s total GDP is $9.24 trillion  United Kingdom’s total GDP is $2.94 trillion  Whose citizens are better off?  GDP per capita in China = $11,850 ppp  GDP per capita in UK = $46,244 ppp