1. What is gross domestic product (GDP)?
The value in U.S. dollars of all final goods and services produced within a country in a given period
Total income of a nation
Measure of nation’s economic well-being
Measure of a nation’s economic growth from one period to the next

2. What are the components of GDP?
Consumption spending
Investment spending
Government spending
Exports - imports

3. The components of GDP What is consumption spending?
It’s what you do. Regular people spending their money on goods and services.
Examples include:
New cars
Furniture
Food and clothing
Rent on an apartment
Airplane tickets
Legal advice
entertainment

4. The components of GDP Investment spending
This is businesses spending money on capital goods (machines, tools, equipment, factories, inventory, etc.)
Examples include:
Tools
New office or shop space
Machines for a factory or store
Opening another location
New houses

5. The components of GDP Government spending
The spending of all levels of government on goods and services
Examples include:
Scientific research
Roads
Military spending
Schools
Police and fire services

6. GDP formula
GDP is
GDP = Consumption (C) + Investment (I) + Government (G) + Net imports (NX) or
GDP = C + I + G + NX

7. Real and nominal GDP
When GDP is computed in the current year’s prices, rising prices (inflation) can make it difficult to determine if a change in GDP from one year to the next is due to the country’s production of more goods and services or to increases in the price level.
Nominal GDP measures the total spending on goods and services in all markets in the economy. If total spending rises from one year to the next, one of two things must be true: The economy is producing a larger output of goods and services, and/or goods and services are being sold at higher prices.
To obtain a measure of the amount produced that is not affected by changes in prices, we use real GDP, the production of goods and services valued at constant prices. We calculate real GDP by choosing one year as a base year to express the prices in. Real GDP uses constant base-year prices to place a value on the economy’s production of goods and services.

8. Real and nominal GDP
Nominal GDP: GDP that is not adjusted for inflation (rising prices from year-to-year). The value of goods and services in current prices.
Real GDP: The dollar price of GDP in a base year’s price, used to compare changes in GDP from one year to the next. GDP is adjusted for inflation (rising prices). An increase in real GDP is an increase in economic growth.
Nominal GDP measures the total spending on goods and services in all markets in the economy. If total spending rises from one year to the next, one of two things must be true: The economy is producing a larger output of goods and services, and/or goods and services are being sold at higher prices.
To obtain a measure of the amount produced that is not affected by changes in prices, we use real GDP, the production of goods and services valued at constant prices. We calculate real GDP by choosing one year as a base year to express the prices in. Real GDP uses constant base-year prices to place a value on the economy’s production of goods and services.

9. What GDP does not tell us
Does not measure income distribution
Does not measure non-monetary output or transactions (e.g., barter, household activities)
Does not take into account desirable externalities, such as leisure or environment
Does not measure social well-being
Correlates to standard of living but is not a measure of standard of living

10. Check for Understanding
Grab a 3 x 5 card
Put your name and date on the back
Answer
What’s the difference between real and nominal GDP?
Name a good or service that would be considered consumption spending, investment spending, and government spending (one for each).
Give the card to your teacher