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 2016 was $11.64 trillion
GDP Per Capita of $6,497.50
Why is China’s Per Capita so much lower than the United States, when the total difference is less than $9 trillion?

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. 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?

5. What is Excluded from GDP?
Examples
Factory tires on a new car
Processors in a computer
Sugar used to make a cake in a bakery
Do aftermarket tires and rims count towards GDP? Should they?

6. 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?

7. 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.

8. Why would some nations have higher rates of underground economy?
Country
Size of Shadow Economy
Nigeria/Egypt
68-76%
USA/Japan
8-10%
Tunisia/
Morocco
39-45%
Russia/Latvia/
Lithuania
20-27%
Central/South America
40-60%
Georgia/Azer-baijan
28-43%
Thailand
70%
Romania
7-16%
Philippines/ Sri Lanka
38-50%
Hungry/ Bulgaria
20-28%
Hong Kong/ Singapore
13%
Sweden/ Norway/Denmark
13-23%
At 8%, the U.S. underground Economy is $1.168 Trillion (world’s 12th largest economy)
At 10%, the U.S. underground Economy is $1.426 Trillion (world’s 10th largest economy)
Why would some nations have higher rates of underground economy?

9. 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
Current GDP- based upon prices that existed in those years
What changes each year that makes GDP change, even if production does not?

10. 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 a increase in GDP indicate?

11. 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

12. 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 (DPI) = PI- taxes
Which measure of national income would you be interested in if you were trying to forecast the sales of consumer goods?

13. 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 )
Y = C + I + G + (X – M)