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Gross Domestic Product By: Mrs. Erin Cervi. Gross Domestic Product. G = Gross- TOTAL D = Domestic- Made in a country P = Product- Production of a final good/service during a specific period of time . (GDP) measures our nations (and others around the world) total economic performance

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Gross Domestic Product

By: Mrs. Erin Cervi

Gross domestic product
Gross Domestic Product

G= Gross- TOTAL

D= Domestic- Made in a country

P= Product- Production of a final good/service during a specific period of time.

(GDP) measures our nations (and others around the world) total economic performance

It is an economic indicator!

1991 U.S. gov’t switched from GNP to GDP

GNP: included production of all U.S. resident’s no matter where they were located


Bureau of Economic Analysis (BEA): Calculate the GDP in the U.S.

Counted Toward GDP

NOT Counted Toward GDP

  • Intermediate goods (NO DOUBLE COUNTING)

  • Old goods/resale goods (already counted before)

  • U.S. companies abroad

  • Financial assets (stocks, bonds, CDs)

  • Non-market activity

    • unpaid labor/do-it-yourself projects, finding own home, buying own stocks, volunteer work

    • under the table transactions b/c no record of transaction (babysitting)

  • Public transfer payments (SS, Medicaid, unemployment)

  • Private transfer payments (gift of money)

  • only final goods and services (C, I,G, (X-M))

  • New (produced that year)

    • Capital resources count if they are NEW

  • Domestically produced

    • Foreign companies w/in U.S. borders

  • Commissions (broker fees, real estate agent fees)

  • Inventories (produced, just not sold)

Gross domestic product gdp
Gross Domestic Product (GDP)

  • GDP is measured by totaling money spent on four categories.

    • GDP= C+I+G+ (X-M)


Productivity and Wages–the Big Disconnect


  • Definition: The spending by households on goods and services.

    • A new car, food, clothes, college tuition, sporting event, health insurance.

    • Makes up 2/3rds of GDP

At the beginning of the 1980’s, just over 60% of the U.S. Gross Domestic Product was consumer spending. Today, consumer spending is close to 70% of GDP.


  • Investment sometimes refers to the purchase of financial products, such stocks, bonds, or even gold, with the hope of making money in the future.

  • Regarding GDP, investment is defined as: purchases that contribute to the overall performance of an economy.

  • There are THREE things that count as investments

    • Spending by businesses on capital resources/machinery, factories, equipment, tools, computers, technology, new buildings.

    • Individuals buying a new house

    • INVENTORIES: A company's merchandise, raw materials, and finished and unfinished products which have not yet been sold.

Government spending
Government Spending

  • Definition: Spending by all levels of government on goods and services

    • Direct payment for goods/services

    • Military, roads, healthcare

Net exports
Net Exports

  • Definition: Spending by people outside the United States on US produced goods (exports, or X)

  • Minus spending by people in the United States on foreign goods and service (imports, or M)

  • (X-M) = Net Exports

How is gdp an economic indicator
How is GDP an economic indicator?

  • When the GDP is rising, a national economy is growing.

    • If the U.S’s GDP increases 3-5% each year =optimal b/c we are growing at a healthy, sustainable rate (a rate that can be kept up).

  • When GDP increases 2% and below it is considered to have a sluggish/declining economy.

  • Even better indicator: real GDP per capita=real GDP/population