1. Unit 2 Measuring Domestic Output, National Income & the Price Level
Krugman Section 3
Modules 10 and 11

2. Gross Domestic Product (GDP)
GDP = the total market value of all final goods and services produced within a country in one year
Measured in quarters (every 3 months)
1st = January - March
2nd = April - June
3rd = July – September
4th = October - December

3. GDP
Includes only final goods = g & s that are purchased for final use by the consumer
Does not include intermediate goods = g & s that are resold or go on for further processing or manufacturing
This avoids multiple counting
Is the value of what has been produced, not what was actually sold

4. GDP Excludes Nonproduction Transactions
Existing assets or property that is sold or transferred, including used items, is NOT counted
Public or private transfer payments
--public = SS or welfare payments
--private = student allowance or alimony
--sale of stocks and bonds
--broker services rendered ARE counted

5. More Nonproduction Transactions
Secondhand sales
Unreported business activities done in cash (ie unreported tips)
Illegal activities
“Non-market” activities like volunteering or family work
US corporation’s production in overseas plants

6. 2 ways to look at GDP Expenditures Approach
GDP has 4 components
GDP = C + Ig + G + Xn
C = Personal Consumption
durable & nondurable finished g & s (but not houses/buildings)

7. Expenditures Approach
Ig = Gross Private Domestic Investment (Gross Investment)
Purchases of machinery, equipment & tools
Factory maintenance
All construction (including houses)
Unsold inventory of products

8. Expenditures Approach
G = Government Spending
Government purchase of resources (mainly labor)
Again, it excludes transfer payments like SS

9. Expenditures Approach
Xn = Net Exports (exports – imports)
--All spending on g & s produced in the US must be included in the GDP, whether the purchase is made here or abroad
--For decades, Xn has been a negative
(= trade deficit)

10. Expenditures Approach
C + Ig + G + Xn
= GDP

11. PRACTICE WORKSHEET
What counts in GDP? Why or why not?

12. Income Approach W + R + I + P Wages Rents received Interest earned
Profits

13. GDP by Country
314
*CIA Factbook 2013 Estimate

14. GDP by Country 15
*CIA Factbook 2013 Estimate

15. 2008 Audit Exam

16. 2008 Audit Exam

17. 2007 FRQ

18. 2007 FRQ 19