1. Measuring the Nation’s Output and Income
12.1

2. Gross Domestic Product (GDP): The Measuring of National Output
In 2016 the United States GDP measured $18.56 Trillion
GDP Per Capita of $51,638.10
China’s GDP in 2014 was $21.27 Trillion (but their currency is considered undervalued so it is difficult to accurately compare to other nations.)
GDP Per Capita of $15,400
Why is China’s Per Capita so much lower than the United States?
because China's exchange rate is determine by fiat, rather than by market forces, the official exchange rate measure of GDP is not an accurate measure of China's output; GDP at the official exchange rate substantially understates the actual level of China's output vis-a-vis the rest of the world; in China's situation, GDP at purchasing power parity provides the best measure for comparing output across countries (2013 est.)

3. GDP GDP is a measure of National Output
Japanese cars built in the US count towards the US GDP
U.S. owned plants in Mexico or other countries do not
GDP is calculated by multiplying all final good and services produced in a 12 month period by their prices
Only “final goods” are included. What are those, and why?

4. Group Work for Extra Credit!
Get into groups of two and have a writing utensil and a piece of paper ready for a GDP Challenge!!!!!

5. You will have 5 minutes to list, in order from 1 to 10 (one being the greatest), the top 10 individual national economies in the world.
Cell Phones/Books prohibited
Perfect Score gets 5 points Extra Credit

6. Top10 in Trillions of US Dollars
Check Your Answers
Top10 in Trillions of US Dollars
China $21.3
USA: $18.5
Japan: $4.93
Germany: $3.49
UK: $2.65
France: $2.48
India: $2.25
Italy: $1.8
Brazil: $1.77
Canada $1.53

7. Does it really change that much?
2015
2014
USA: $17.4
China: $10.4
Japan: $4.6
Germany: $3.9
UK: $2.9
France: $2.8
Brazil: $2.4
Italy: $2.1
India: $2.0
Russian Fed: $1.9
USA: $16.3
China: $14.8
India: $6.4
Japan: $4.5
Germany: $3.4
Russian Fed: $3.4
Brazil: $2.9
France: $2.4
UK: $2.3
Indonesia: $2.2

8. What is Excluded from GDP?
1. Intermediate goods
Products used to make other products already counted in GDP.
Something that is already a part of another product.
What are some examples?

9. Examples Factory tires on a new car Processors on a computer
Sugar used to make Pop Tarts
Do aftermarket tires and rims count towards GDP? Should they?

10. What is Excluded from GDP?
2. Secondhand sales
Anything that you buy that is used
Resold Houses, used cars, clothes from the salvation army.
Why should these not be counted towards GDP?

11. What is Excluded from GDP?
3. Nonmarket Transactions
Things you do yourself
Mowing your lawn
cooking your own meals
cleaning your clothes
Underground activity
Legal: Bake sales, babysitting, flea market, garage sales
Illegal: Drugs, prostitution (other than select parts of Nevada), gambling (unless done in a state casino), counterfeiting.

12. Why would some nations have higher rates of underground economy?
This means the U.S. underground Economy is $1.4Trillion (world’s 18th largest economy)
Why would some nations have higher rates of underground economy?

13. GDP Over Time
In order to calculate GDP growth or loss you first need to establish a “Base Year”
Base year is: Real GDP
No Base Year: Nominal GDP – doesn’t account for inflation
Current GDP- based upon prices that existed in those years
What changes each year that makes GDP change, even if production does not?

14. GDP Shortfall GDP tells us nothing about:
Composition of output
What companies make or produce
The impact of production on quality of life
How building new homes will force a rare bird species into extinction
Despite these limitations, GDP is still the best measure of overall economic health
What does an increase in GDP indicate?

15. National Income
Gross National Product (GNP) is the measure of national income in ONE YEAR.
GNP is equal to GDP + all payments received from outside US – all payments made to foreign owned resources inside the US.
GDP + Payments outside US – Payments made to foreign owned resources in US = Total GNP

16. Net National Product (NNP)
NNP = GNP minus depreciation
Depreciation represents capital equipment that wore out or became obsolete during the year
National Income (NI) = NNP minus all taxes paid by businesses other than the corporate profit tax.
Personal Income (PI) = Total amount of income received by individuals before taxes.
Disposable Personal Income (DI) = PI- taxes
Which measure of national income would you be interested in if you were trying to forecast the sales of consumer goods?

17. Economic Sectors & Circular Flows
The economy consists of several different parts
Look at chart on page 325
Consumer sector ( C )
Investor Sector ( I )
Government Sector ( G )
Foreign Sector (X – M )
The output expenditure model:
GDP = C + I + G + (X – M)