1. GROSS DOMESTIC PRODUCT (GDP) & GROSS NATIONAL PRODUCT (GNP)
ECONOMIC INDICATORS
GROSS DOMESTIC PRODUCT (GDP)
&
GROSS NATIONAL PRODUCT (GNP)
MEASURING ECONOMIC GROWTH

2. GDP – Associated Concepts
Intermediate Goods
Final Goods
Nominal GDP
Real GDP
Inflation
GDP per capita
GDP adjusted for PPP.
(Purchasing Power Parity)

3. 3 Main Ways to Calculate GDP
The Expenditure Approach
What people spend.
Output Approach
What is produced.
Income Approach
What people earn.

4. What is GDP? (Output Approach)
The total value of all final goods and services produced in an economy within one year or a specified period of time.
The economic growth of a country is measured by the increase or decrease in GDP.

5. GDP – FINAL GOODS What are final goods?
Final goods are complete products sold to
consumers. For example: a car you purchase from a
Holden is a final good. However, the accelerator
pedal in the car is an intermediate good.
The cost of producing intermediate goods are not included
in GDP calculations.
Why???

6. DIFFERENCES BETWEEN INTERMEDIATE AND FINAL GOODS
Classify each of the following as either an
intermediate or final good:
Windscreen wiper
Mobile phone
Bulb in a Television
Computer chip
Staples
Pizza
Aircraft propeller

7. What is GDP? (The Expenditure Approach)

8. What is GDP? (The Income Approach)
This measures the value of all incomes earned in the economy.
The involves compiling data on income earned from wages & salaries (by individuals) and the income earned from rent, interest and profits by companies.
Not frequently used in the IB course.

9. What is the total GDP of the United States?
Total US GDP is about $16.9 trillion (Q1 2017) data. (floatingpath.com)
US GDP per capita is about $52,194 (based on the latest 2016 full year data) (Tradingeconomics.com)
Naturally, GDP per capita does not imply, every person has an income of $52,194. Many people earn a lot less and a lot more in the United States.

10. US GDP Growth to July 2017
Source:

11.
What major event happened in ?. What was the impact on the global economy?

12. US ECONOMIC GROWTH: 2007 TO 2017
Source:
How many recession(s) has the US experienced from 2007 to 2017?

13. Source: http://www.floatingpath.com/2017/06/29/u-s-gdp-watch-2/

14. Source: http://www.floatingpath.com/2017/06/29/u-s-gdp-watch-2/

15. Explain the difference between
Real &
Nominal
GDP

16. Which states had the strongest growth? The weakest growth?
Based on the above data, which US States contributed the most to US GDP?
Which states had the strongest growth? The weakest growth?
Source:

17. Source: https://www.tumblr.com/search/us-gdp

18. Four Main Components of US GDP
The Bureau of Economic Analysis, divides US GDP into four main components:
Personal Consumption Expenditures
Business Investment
Government Spending
Net Exports of Goods & Services

19. Components of GDP
Nearly 70% of what the US produces is for personal consumption.
The productions of goods is about 25% of total GDP.
Services are a much larger component of personal consumption. Services are about 45% of GDP.
Government spending is about 18% of GDP.

20. What is the total GDP of China?
At the end of China’s GDP was about trillion - the world’s second largest economy at official exchange rates.
The 2016 estimate of China’s GDP per capita was about US$6894

21. CHINA’S TOTAL GDP IS NOW ABOUT 11.19 TRILLION DOLLARS
Source:

22. Source: http://marketrealist

23. Comment on the trends in this graph.
Source:
Comment on the trends in this graph.

24. Although China has experienced very high GDP growth rates for more than 2 decades, per capita GDP is still only $6894, well behind the United States at over $ But China’s population is more than 4 times larger than the United States.
Source:

25. Source: http://www.valuewalk.com/2017/06/america-1950/

26. How does US GDP compare to the rest of the world?
The US is still the largest economy in the world despite the GFC (Global Financial Crisis)
It position as the world largest economy is based on official exchange rates.
By using another exchange rate measure (PPP – Purchasing Power Parity) China is just head of the United States.

27. THE WORLD’S LARGEST ECONOMIES AT THE OFFICIAL EXCHANGE RATE
INTERNET ACTIVITY
Go to the following website:

28. 10 Largest Economies in the World at Official Exchange Rates
Country (GDP at Current Prices) or Nominal GDP
GDP 2016
(trillions)
1 United States
2. China 3 4 5 6 7 8 9
10.

29. THE WORLD’S LARGEST ECONOMIES AT PURCHASING POWER PARITY (PPP)
At official exchange rates (current prices), the US is still the largest economy in the world.
However, a number of economics institutions and leading publications (eg: CIA World Fact Book) are citing PPP statistics.
Based on PPP data, China is the largest economy in the world.

30. What is a Purchasing Power Parity (PPP) Exchange rate?
Go to your online Cambridge Textbook. Type Purchasing Power Parity (in the search box) Select the 2nd returned section. Write a definition for PPP:

31. Definition of PPP (Purchasing Power Parity)

32. 10 LARGEST ECONOMIES AT PPP (PURCHASING POWER PARITY)
Web Source: (Go to)
Total GDP
At PPP
Exchange
Rates 1. 2. 3. 4. 5. 6. 7 8 9 10

33. What is the richest country in the world (per capital GDP)?
Source:
What is the richest country in the world (per capital GDP)?

34. Gross National Product (GNP)
GNP is often confused with GDP.
They are calculated differently.
For some countries there is a significant difference between GNP and GDP figures.
For other countries, there is very little difference in the specific figures.

35. Gross National Product (GNP
An estimated value of the total worth of production and services, by citizens of a country, on its land and on foreign land, calculated over the course on one year.

36. GROSS NATIONAL PRODUCT (GNP)
Gross National Product is GDP +
Net Foreign Income from Abroad.
For example, GNP for the US would be
GDP + (plus)
US company/individual income from overseas
– (minus) .
Foreign company/individual income from the US

37. Which is greater GDP or GNP?
When Americans receive more income from their overseas investments than foreigners receive from their investments in the United States, American GNP will be somewhat larger than GDP in that year. If Americans receive less income from their overseas investments than foreigners receive from their US investments, on the other hand, American GNP will be somewhat smaller than GDP.

38. GDP versus GNP Final goods/services produced within
GDP v. GNP (8 min vid) -
GDP versus GNP
It’s a matter of
LOCATION vs OWNERSHIP
Final goods/services produced within
a country
Final goods/services produced anywhere by a country’s citizens

39. What is US GNP?
The United States, stopped using GNP statistics in its national accounts in 1992, although these figures are still collected by statistical agencies.
US GNP and GDP have been similar for a number of years.
However, for many countries their GNP is significantly less than their GDP.

40. GDP – A VITAL ECONOMIC INDICATOR
Why is GDP a very important economic indicator?
It helps to measure the size of a country’s economy relative to other countries.
All government spending can be expressed as a percentage of GDP for global comparison purposes.
GDP can be expressed on a per capita (person basis) – to further assist our understanding of global differences between nations & regions.

41. GDP – A VITAL ECONOMIC INDICATOR
Countries can be classified into different income groups based on GDP figures.
For example the high income, middle income, and low income countries.
GDP figures are used in all reference books, and business/ economic journals.

42. GDP – A MEASURE OF ECONOMIC GROWTH
A country’s growth rate is determined by the percentage increase or decrease in GDP.
For example if GDP was $10 billion in 2007 and increased to $10.5 billion in 2008, the growth rate for the country would be 5% per annum. However it is necessary to distinguish between Real and Nominal GDP. (future slides)

43. What is a recession? Negative GDP Growth
Two consecutive quarters of negative economic growth OR 6 months of negative economic growth.
What does negative economic growth mean?
GDP went backwards (declined from the previous
period)
Expansion: increase in GDP / economic growth
Contraction: decrease in GDP / economic growth

44. The Latest Economic Data: Economist.com
Go to economist.com
Click on economics (top tab)
Click on market & data.
Stroll down to output, markets and jobs.

45. Economic Growth Rates High Income Advanced Economies
Country
GDP Growth Rates
Economist Magazine Prediction Full Year 2017
Economist Magazine: August 2017
Singapore
South Korea
Canada
Australia
Japan
United States
Germany
France
Britain
Greece

46. Economic Growth Rates Developing Countries
Country
GDP Growth Rates
Economist Magazine Prediction Full Year August 2017.
China
India
Brazil
Argentina
Vietnam
Indonesia
Chile
Colombia
Mexico
South Africa
Venezuela

47. Nominal GDP vs Real GDP Nominal GDP
GDP which is not adjusted for inflation.
As a consequence nominal GDP figures are distorted by inflation and are not accurate.
Real GDP
GDP which is adjusted for inflation.
As consequences these GDP figures are more accurate, than nominal figures.

48. The GDP Deflator
A price index commonly used to covert nominal GDP to real GDP is called the GDP deflator.
The word “deflate” suggests that nominal GDP will be reduced to take account of inflation.
How to calculate the GDP Deflator =
Nominal GDP
Real GDP x 100

49. How to Calculate Real GDP?
Formula for calculating Real GDP = Nominal GDP
GDP Deflator
x 100

50. Real GDP Question for Country XYZ
Year
Nominal GDP $
Real GDP $
GDP Deflator
2001**
881
100.00
2002
1160
976
118.8
2003
1223 ??
130
** 2001 is the Base Year, and used for comparison purposes. Statistical agencies have to establish a year for comparison purposes.
What is Real GDP for country XYZ in 2003?
Example Source: Tragakes, Economics for the Diploma Program. p229

51. Real GDP Questions
What is Real GDP for country XYZ in 2003?

52. Calculating the Economic Growth Rate
The % percentage change in Real GDP over a specific period of time. Formula:
Current Year Real GDP – Previous Year Real GDP Previous Year Real GDP x 100
Question:
For country XYZ, what was the economic growth rate between 2002 & 2003?

53. A final word: Green GDP
Source:
How would you calculate Green GDP for China? What would be the Green GDP for China?