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Gross Domestic Product. How do you measure economic growth?. Gross Domestic Product (GDP). Dollar Value of all new FINAL goods & services produced domestically over one year. Currently = $16.6 Trillion dollars Released quarterly by the Government ( measured by % growth )

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Gross domestic product

Gross Domestic Product

How do you measure economic growth?


Gross domestic product gdp
Gross Domestic Product (GDP)

  • Dollar Value of all new FINAL goods & services produced domestically over one year.

    • Currently = $16.6 Trillion dollars

  • Released quarterly by the Government(measured by % growth)

    • Recession = Negative GDP growth for 2 consecutive quarters

  • Historically U.S. GDP grows between 1% - 5% annually

    • Growth above 5% is considered “too fast”

      • causes inflation…

    • Growth below 2% is considered “too slow”

      • causes rising unemployment


GDP growth by quarter(3months)

Slow GDP growth recovery

from great recession = +2.0%


2 ways to measure gdp

Resource SuppliedIncome Received

Labor Wages

Land Rent

Financial Capital Interest

Entrepreneurial Talent Profit

2 Ways to measure GDP

  • Since every economic transaction has both a buyer & a seller => there are 2 ways to measure GDP

    • GDP is the sum of all spending or all income

    • 1) ExpenditureMethod= add up all spending

      • method used most of the time in AP Economics

  • 2) Income Method= add up all income (wages, rent, interest & profits)


PRODUCT MARKET

Total Expenditures

must equal

Total Income

Goods and

Goods

services

and services

bought

sold

FIRMS

HOUSEHOLDS

Labor, land,

Factors of

capital & entrepreneurship

production

FACTOR Market

Wages, rent,

Interest & profit

2 methods of calculating GDP continued

GDP = Total Income

GDP = Total Expenditures

Spending

Revenue

Income

= Flow of inputs

and outputs

= Flow of dollars


Not included in gdp
NOT included in GDP:

Intermediate Goods:

Only FINAL goods counts (must avoid “double counting”)

Example: steel used to make a car does not count

count only value of the entire car (not parts)

Non-markettransactions:

  • If you call a plumber it counts. If you fix your sink

It does not count

Underground Economy

  • illegal sale of goods (drugs), payments made “under the table”, etc…

Financial Transactions

only a transfer of assets

Gov’t Transfer Payments

Gov’t transfers to person or company

Example: welfare, social security, etc…

International goods:

  • Only goods produced in USA count

    Second hand sales

  • only NEW sales count


PRODUCT

Market

FIRMS

HOUSEHOLDS

FACTOR

Market

Expenditure Equation for GDP:

GDP = C + I + G + (X-M)

New Capital Machinery

New Construction

Unsold Inventories


Worksheet gdp analysis
Worksheet: GDP Analysis

GDP = C + I + G + (NX)


Primary use of gdp
Primary Use of GDP

  • Objective way to “keep score” on economic performance

  • Politicians monitor GDP figures to determine Gov’t Policy

  • Federal Reserve also base their policy decisions on GDP


U s gdp in comparison

23% of World GDP

U.S. GDP in Comparison

  • U.S. $16.0 Trillion

  • Entire World: $70.0 Trillion

  • China 7.0 Trillion

  • Japan 6.0 Trillion

  • Germany 3.3 Trillion

  • India 1.8 Trillion


Per capita gdp
Per Capita GDP

  • GDP divided by a countries population

  • Illustrates the $ value of economic output perperson

  • Current Statistics:

    • USA 310,000,000 Million people

    • GDP $15,600,000,000,000 Trillion dollars

    • Per Capital GDP = $50,000


Global perspective per capita gdp
Global Perspective: Per Capita GDP

  • World $8,600

  • Luxembourg $104,000

  • Denmark $56,000

  • U.S. $46,000

  • England $36,000

  • Japan $39,000

  • China $3,700

  • Bhutan $1,800



What gdp does not measure
What GDP does Not Measure

  • The mix of products:

    • all goods treated equally: Guns versus Food

  • How goods are distributed

    • Is wealth concentrated evenly?

  • The Quality of goods

    • New computers with more memory


Gdp and quality of life
GDP and Quality of Life

  • Does not measure Leisure Time

    • Vacation Days in Europe vs. U.S.

  • Work 80 hours instead of 40 hrs/week, GDP increases

    • What about quality of life?


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