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Published byWilliam Lambert Modified over 9 years ago
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GDP and its Components
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GDP = C + G + I + X N GDP: total value of all final goods and services produced during a time period inside a country (usually annually) Easiest for us to consider in class using the expenditure flow Key expenditures: –Personal Consumption –Government Purchases –Private Investment (Buying Capital) –Net Exports
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US Real GDP 1945-2010 Source: Google Public Data
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Personal Consumption Household consumption 2/3 of US economy Must be purchases of new items Examples: –Sodas –iPods –Cars –Washing machines (Durable goods) –Rockies tickets
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Government Purchases Purchases by all levels of gov’t: national, state, county, city, etc. Must be purchases of goods and services, not all gov’t spending Does not include “transfer payments:” gov’t spending on welfare, social security, etc. (not buying goods or services)
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Private Investment Goods produced for use in the production of other goods and services (capital) “Gross Private Investment” includes three categories: –Firms’ spending on new buildings, plants, tools, capital –Purchases of new residential housing –Additions to firms’ inventories Note: spending must be on new items only, not items produced in the past Investment is choice to postpone current consumption in order to produce more in the future Investment is highly volatile component of GDP
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Net Exports (X N ) Net Exports = Exports – Imports Negative net exports = “trade deficit” Positive net exports = “trade surplus” Tricky in current economy: products contain imported and domestic parts US has run a trade deficit since 1980s. Good thing? Bad thing?
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GDP and GNP “Domestic” = a land (e.g., inside US borders) Includes a land’s income, regardless of who does the work “National” = a people (e.g., the US people) Gross National Product includes a people’s income, wherever they live and work Example: Mexican workers’ wages earned in the US are included US GDP, because they are created inside the US US workers’ wages earned abroad excluded from the US GDP, because they are earned outside the US
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Per Capita GDP Population of Greece = 11M; Population of USA = 300M Total GDP ÷ population = Per Capita GDP Per Capita figures help –compare wealth of nations –wealth of a nation over time (“yes GDP grows, but are people wealthier?”)
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Comparing Real GDP Over Years
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Percentage of GDP Comparisons We can compare national expenditures as percentages of GDP War Spending During Peak Year % of GDP Iraq (2008) 4.4% Vietnam9% Korea14% WW237% Source: The Economist, Feb 10, 2007
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