Econ 2020 Chapter 9 GDP

GDP

Total market value of all final goods and services produced within a country in a given period of time

3 ways of measuring GDP

Total spending, Total output, Total income

Consumption

Spending by households on goods and services, with the exception of purchases on new housing. Durables, non-durables and services

Investment

Total spending on goods that will be used in the future to produce more goods and services. Purchase of capital goods (equipment, buildings, inventories etc.)

Government spending

Government spending on goods and services at federal, state and local levels. Excludes transfer payments such as social security or unemployment insurance benefits

Net exports, NX

Exports - imports. Exports = foreign spending on economy’s goods and services. Imports = portions of C,I, and G that are spent on items produced abroad

Value added

Amount by which the value of an item is increased at each stage of production. Measured your contribution toward producing that item. = total sales - cost of intermediate inputs

GNP ( gross national product )

Total market value of all final goods and srevices produced by a nation’s citizens in a given period of time

GDI ( Gross domestic income )

Counts the income earned and costs incurred in production. In theory, GDI should equal gross domestic product, but the different sources of data means different results

Limitations of GDP

Prices are not values, non-market activities are excluded, ignores shadow economy, no accounting for the environmental costs, leisure doesn’t count, ignores inequality

Nominal GDP

GDP measured in today’s prices → useful for analyzing what GDP is right now, based on prices you face now

Real GDP

GDP measured in constant prices (excludes the effects of price changes). Measures the real change in production

Real to nominal GDP

% change in nominal GDP = % change in real GDP + % change in prices

Rule of 70

Divide 70 by the annual growth rate to approximately get the numbero f years until the original amount doubles