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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
slide3
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)
slide5
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
slide7
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 GDPU.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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