Gross Domestic Product

What two things does GDP measure?

• The income of everyone in the economy

• The total expenditure on the economy’s output

Gross Domestic Product

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

Intermediate Good

A component of a good that is not yet finished

Final Good

A good that is finished completely and ready for sale

Does resale impact GDP?

No, because we’re not producing a new good. We’re just reselling a good that was included in gdp when it was new

What is the GDP equation?

Y = C + I + G + NX

C = consumption

I = investments

G = government purchases

NX = net exports

Consumption

Spending by households on goods and services

• It excludes the purchase of a new house or new housing

Investment

The purchase of goods that will be used in the future to produce more goods and services

• This category includes business capital, residential capital, and inventories

Government Purchases

This measures spending on the federal, state, and local government levels

• This includes all spending on public works, military spending, and the salaries of government workers

Transfer Payments

Government spending that does not count towards the GDP because the payments are not made in exchange for a good or service

• Examples include social security payments and unemployment payments

Net Exports

This measurement of expenditure is equal to the exports minus the imports

• Net exports = exports - imports

• More exports will raise the overall net export value

Nominal GDP

This is just the unit amount of a product times the product price

Real GDP

This is useful for comparing gdp values across time

It is the amount of units times the price in the given base year. The government chooses the base year

Growth Rate of GDP

This is the percent change formula!

(New - old) / (old) times 100

Real GDP Per Capita

This just means the real gdp per person

Real GDP / Population

Measuring GDP With The Income Approach

To measure this, the government adds up wage/salary income, profit income, rental income, and interest income

Measuring GDP With The Production Approach

You need to find the value added

Value added is value (price) of the output (product) - the value of the MATERIALS (inputs) used to make it (doesn’t include labor or rent or anything else!)

GDP Deflator

(Nominal GDP / Real GDP) x 100