Ch8. Gross Domestic Product Chapter Objectives * What is GDP? * How is GDP measured? * What are the national income accounts? * What is the difference between GDP and real GDP? * How does our GDP compare to those of other nations? * How is per capita GDP calculated?
* What is GDP?
* How is GDP measured?
* What are the national income accounts?
* What is the difference between GDP and real GDP?
* How does our GDP compare to those of other nations?
* How is per capita GDP calculated?
* What are the shortcomings of GDP as a measure of national economic well-being?
* How do we graph the C+I+G+X line?
What is GDP?
It is the nation’s expenditure on all the final goods and services produced during the year at market prices.
A Summing up: C + I +G +X
How GDP Is Measured?
The flow-of-income approach,
The expenditures approach
The difference b/w GNP and GDP:
GDP measures the value of all the final goods and services produced within the borders of the United States, while GNP measures the output of all Americans, whether the goods and services are produced here or abroad.
The advantages of using GDP over using GNP:
GDP corresponds more closely than GNP to many important series of economic data, such as employment and industrial production. It is also more useful for making international comparisons , because most other nations now express their output in terms of GDP.
The Expenditures Approach
GDP = C + I + G + X
The Flow-of-Income Approach
GDP - Depreciation = NNP
NNP-Indirect business taxes & subsidies = National Income
National Income is the sum of compensation to employees, corporate profits, net interest, rental income and proprietors’ income.
Two Things to Avoid When Compiling GDP
* we counts only what we spend on final goods and services- not those of an intermediate nature.
*Value-added approach to measure GDP
* We don’t include intermediate goods and used goods in GDP.
Treatment of Transfer Payments
*Social Security, unemployment insurance check
Medicare, Medicaid, public assistance and other government transfer payment
GDP vs. Real GDP
Real GDP(current year) =GDP(current year) x [GDP deflator(base year)/GDP deflator(current year)]
GDP measures changes in output and prices, Real GDP measures just changes in output.
Explain what happen if GDP rises and real GDP fall? (GDP deflator rose, real GDP fall)
Per Capita Real GDP
per capita GDP = GDP/Population
per capita real GDP = real GDP/Population
Shortcomings of GDP as a Measure of National Economic Well-Being
The Underground Economy
Treatment of Leisure Time
Human Costs and Benefits
Do ch8 multiple choice questions and problems.