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GDP: Measure of Economic Growth

Learn about Gross Domestic Product (GDP), how to calculate it, differences between nominal and real GDP, and the importance of measuring economic growth. Discover why GDP does not reflect personal aspects like quality of life or leisure time.

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GDP: Measure of Economic Growth

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  1. Gross Domestic Product Unit 4 Macroeconomics

  2. How Can We Measure Economic Growth? • Gross Domestic Product (GDP) – dollar value of all goods and services produced in the country’s borders in a year

  3. Calculating GDP Includes • Products made inside a country by the country’s residents • Even if the parent company or headquarters is in another country • Products sold to consumers

  4. Calculating GDP Does not include • Intermediate goods used to make the final good • Tires or radios to be installed in automobiles in the factory • Nonmarket Activities • Bartering • Doing favors for people • Producing your own goods

  5. Underground Economy • Black markets • Drug dealing • Gambling • Products made by American owned companies produced in other countries • Secondhand items

  6. GDP does not Measure • Quality of Life • Personal safety • Leisure time

  7. How to Calculate GDP • The Expenditure Approach • add together final value of all goods and services

  8. Formula for Expenditure Approach • C + I + G + (X-M) = GDP • C is Consumer spending • I is Business investments • G is Government spending • X is Exports • M is Imports

  9. U.S. current GDP = $18.57 Trillion (#1 in the World)

  10. Nominal vs. Real GDP • Just because GDP is higher, it does not mean the economy is necessarily better • GDP is usually calculated by using current prices • Nominal GDP • Problem: Inflation would cause GDP to rise, which would indicate economic growth falsely

  11. Real GDP • Compares current production to past production using constant prices • Adjusted for inflation

  12. Per Capita GDP • Measures economic output per person

  13. GNP • Gross National Product • GNP measures output of American businesses anywhere in the world, rather than output within the United States • Doesn’t help measure success of economy… more a measure of national economic power abroad

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