GDP

What is GDP?

GDP stands for Gross Domestic Product, a measure of the total value of goods and services produced in a country during a specific period

→ What is not accounted for in GDP?

stocks not includes, gifts, used items (accounted for), illegal items, non-market such as activity/changing oil myself, or isn’t included) → only calculate things that can be measured

Real GDP

Real GDP is a type of GDP that uses base year prices to account FOR INFLATION

  • Real + Inflation = Nominal GDP

  • Real x (1+rate of inflation) = Nominal GDP

    • Real = Nominal GDP/rate of inflation

Ex. Index Numbers help calculate the rate of change.

125 → 130 → 5/125 = rate of change

This calculation illustrates that the rate of change is 4%, which represents the percentage increase in GDP over the specified period.

→ This can end up impacting many things such as interest, employment, and more.

  • Aggregate spending (GDP) - The sum of all spending from four sectors of the economy. GDP = C + I + G + (X – M).

    • Consumer spending (C) - Spending done by customers.

    • Investment spending (I) - Investment is defined as current spending to increase output or productivity later.

      Three general types of investment are included in GDP:

      • New capital machinery purchased by firms.

      • New construction for firms or consumers.

      • The market value of the change in unsold inventories.

    • Government spending (G) - Purchases made by the government for final goods and services and investments in infrastructure.

    • Net exports (X– M) - Exports → X, Imports → M

  • K.I.S.S.: Keep It Simple, Silly

  • GDP = C + I + G + (X - M) = Aggregate Spending = Aggregate Income (Y) = Sum of all value added

Nominal GDP

This is much less useful than Real GDP, as it does not account for inflation. This does not provide an entire and fully accurate figure of the state of the economy, if it is improving or stagnating.

What are Deflators?

Deflators are statistical measures used to adjust nominal GDP figures for inflation, allowing for a more accurate reflection of the real economic output over time.

→ For example, the price of everything goes up by 8%, but you get a raise of 4%.

Although you are making more money, you are not beating the current market, actually putting yourself in a worse position than before. To beat the market, you would have to have a minimum raise of 8% to break even compared to before.

  • This can impact negotiations, investments, and other monetary assets