1. Gross Domestic Product GDP=C + I +G + (X-M)
Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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Economics, Unit: 06 Lesson: 01

2. Learning Targets Define GDP
Explain How Gross Domestic Product is calculated
Explain the difference between nominal GDP and real GDP
Explain difference
between GNP & GDP
Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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3. Gross Domestic Product
Dollar value of all final goods and services produced within a nation’s borders in one year.
* GDP measures Aggregate “total” Spending, Income and Output
Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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4. Economic growth is one of the major goals of U.S.
Economic growth - increasing production of goods and services
To do this, we must use our productive resources wisely and efficiently.
Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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5. How to use Factors of Production Wisely
Land or natural resources – don’t waste, but conserve
Labor or human resources – make sure workforce has adequate training & education
Capital goods/resources – save more and invest more in capital goods
Entrepreneurship – new business vital, encourage entrepreneurs to start new business
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6. How is GDP determined?
-GDP combines spending of the 3 sectors within the national economy including households (consumer spending), business firms (investment), and the government (government spending) -GDP also calculates international trade (exports and imports) as a contributing factor
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7. C = Consumer Spending on
GDP=C + I + G + (X-M)
C = Consumer Spending on
- durable goods (cars, appliances…)
non-durable goods (food, clothing,…)
services (plumbing, college…)
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8. I = Investment (business) spending on capital goods
GDP=C + I + G + (X-M)
I = Investment (business) spending on capital goods
Spending in order to increase future output or productivity
(new construction, new inventories, etc.)
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9. C + I + G + (X-M) = GDP G = government spending
*government transfers DO NOT count toward GDP
- All levels of government spending on final goods and services and infrastructure count toward GDP.
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10. C + I + G + (X-M) = GDP Exports – Imports X-M
Exports create a flow of money to the United States in exchange for domestic production.
Imports create a flow of money away from the United States in exchange for foreign production.
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11. C + I + G + (X-M) = GDP C = consumer spending
I = investment (business) spending
G = government spending
(X-M) = net export (exports - imports)
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12. If below zero, it means there are more imports than exports
GDP
Foreign = Net Export
If below zero, it means there are more imports than exports
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13. Not included in GDP:
- GDP counts all final, domestic production for which there is a market transaction in that year. Used and intermediate goods* are not counted in order to avoid double-counting. *Goods used in the production of another good (We wait and count the final product).
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14. Cost of denim fabric not counted
Instead, we count the value of the
finished product, jeans.
Left: (2012). Blue jean. (2012). [Web Photo]. Retrieved from
Right: Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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15. NEW TRUCK or final product
not counted
not counted
New Goodyear Tires
New Stereo
NEW TRUCK or final product
counted in GDP
Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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16. Used products - These products were counted the year they were made so we will not count them again this year or the year it was purchased. For example, if you buy a used car, just 1 year old with only 10,000 miles, it is not counted in this year.
Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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17. Non-market activities
These are activities that a person does themselves such as painting your house instead of hiring a painter.
(i.e. babysitting for the neighbor)
Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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18. Illegal market
This includes all of the underground “black market economy or illegal transactions.
Such as:
gambling
drugs
stolen property
Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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19. Financial Transactions
This includes things like stocks and bonds. Nothing is produced; just paper showing a claim of some sort, not a good or service.
Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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20. Gifts or Transfer
You receive money for your birthday, or pay taxes or pay child support. Nothing is produced; simply transferring money from one group to another
Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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21. Different Types of GDP
Nominal GDP: no adjustment for inflation (“current” dollar value used).
Is “current” GDP measured at current market prices. May overstate the value of production because of inflation.
Real GDP: adjusted for inflation (converted to base year prices). Measured with a “fixed dollar” that is held constant & is useful for making year to year comparisons. THIS IS THE IMPORTANT ONE!!!!
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22. GDP & GNP
GNP – Gross National Product: all goods & services produced by a nation’s citizens inside and outside of borders.
GDP – Gross Domestic Product: all final goods & services produced within a nation’s border during a year
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23. Limitations of GDP Non-market activities The underground economy
Negative externalities
Quality of life
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