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Gross Domestic Product (GDP)
GDP is the market value of all final goods and services produced within a nation in a year
GDP is an aggregate measure of the economy
Cartogram map showing other countries’ GDP relative to U.S. States
GDP vs. GNP
Until the 1990’s, Gross National Product (GNP) was the federal measure of the economy.
GNP=Measure of the value of all goods & services produced by US owned firms whether domestically produced or manufactured abroad.
GDP & the Quarter System
GDP is officially measured in “quarters” of years:
Quarter 1 = Jan/Feb/Mar
Quarter 2 = Apr/May/June
Quarter 3 = July/Aug/Sep
Quarter 4 = Oct/Nov/Dec
Measuring GDP
The Expenditure Approach (aggregate spending)
C + Ig + G + Xn = GDP (nominal)
Consumption (C)
Consumer spending on Durable goods (cars, appliances…) Non-durable goods (food, clothing…) Services (plumbing, college…)
Consumer spending is the largest component of U.S. GDP.
Gross Private Investment (Ig)
Spending in order to increase future output or productivity Business spending on capital New construction
Homes
Commercial Real Estate Development
Change in unsold inventories
Government Spending (G)
All levels of government spending on final goods and services and infrastructure count toward GDP.
Government transfer payments do not count toward GDP.
Net Exports (Xn)
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.
The Income approach
r + w + I + p = GDP (nominal)
Rent + wages + interest + profits or…
The Factors of Production…
Yeah this exists…
2 more things
Nominal vs. Real GDP Nominal is not adjusted for inflation Real is
GDP per capita GDP per person Considered a better measure of
economic wellbeing
What does not count…
Used goods/Second-Hand Goods Gifts or ‘Transfers’ (private or
public) Stock/Equity/Security purchases
(Places like NYSE or NASDAQ) Unreported Business Activities
conducted in “cash”
(ex. Unreported tips…)
What does not count…cont.
Illegal activities
(Black Markets) Financial Transactions between
banks and Businesses Intermediate goods (no double
counting) Non market activities like
volunteer and family work