1. Lesson 1: Gross Domestic Product
Unit 3: Macroeconomics
Lesson 1: Gross Domestic Product

2. Measuring Economic Performance
national income accounting: a system that collects statistics on production, income, investment, and savings
National Income and Product Accounts: NIPA used by Department of Commerce to determine economic policies

3. Gross Domestic Product
GDP: the total dollar value of all final goods and services produced within a country’s borders during a given year
● No intermediate products
● No overseas production
● No secondary sales items

4. Question #1: What is added to the GDP in the sale of a new home
Question #1: What is added to the GDP in the sale of a new home? Explain.

5. Question #2: What is added to the GDP in the sale of a used home
Question #2: What is added to the GDP in the sale of a used home? Explain.

6. Gross Domestic Product
Expenditure vs. Income Approach
● Expenditure: a method to calculate GDP by using amounts spent on four categories of goods & services C + I + G + (X – M)
C = consumer (durable vs. nondurable)
I = business (capital goods)
G = government (federal, state, local)
(X-M) = total exports – total imports

7. Gross Domestic Product
Expenditure vs. Income Approach
● Income: a method to calculate GDP by adding up all the incomes in the economy

8. Question #3: What is added to GDP in the sale of an automobile using income approach? Give examples in your response.

9. Gross Domestic Product
Nominal vs. Real GDP
● nominal GDP: “current GDP” is measured in the current year’s prices
● real GDP: real GDP is measured in constant or unchanging prices to account for inflation

10. Real GDP = constant prices
Nominal vs. Real GDP
Nominal GDP = current prices
Year
Price
Quantity
GDP (PXQ)
2007
$100
1,000
$100,000
2008
$125
$125,000
Real GDP = constant prices
Year
Price
Quantity
GDP (PXQ)
2007
$100
1,000
$100,000
2008

11. Limitations of GDP
non-market activities: no measure of goods and services made for no pay (child care)
underground economy: no measure of unreported jobs (“black market” & “under the table” wages)
negative externalities: no measure of value for economic side-effects (clean air)
quality of life: additional goods and services do not always equate to happiness

12. Influences on GDP What factors can change level of GDP?
aggregate supply: AS is the total amount of goods and services in the economy that are available at all prices
aggregate demand: AD is the total amount of goods and services in the economy that are purchased at all prices

13. Influences on GDP
AS/AD Equilibrium: the intersection of AS and AD portrays market equilibrium
● P = price level
● Q = GDP

14. Influences on GDP
5. A shift in either AS or AD will cause a change to GDP and the price level