Lecture 2: Gross Domestic Product (GDP)

Lecture 2: Gross Domestic Product (GDP)

Date: Wednesday, January 14, 2026, 11:59 AM

Basic Indicators of Economic Performance

1. Gross Domestic Product (GDP)

2. Inflation

3. Unemployment

Gross Domestic Product (GDP)

• Definition: The Gross Domestic Product (GDP) of an economy is defined as the market value of all final goods and services produced and sold within the economy in a given time period.

  • Example: For the USA, the GDP for 2025 is recorded as:

  • $GDP = 31 ext{ trillion USD}$

  • Numerical expression: $31,009,000,000,000$

Key Concepts Related to GDP

• Market Value: The price at which a good or service is sold in the marketplace.

• Final Goods and Services: These are goods and services that are sold to the end consumer.

  • This definition emphasizes avoiding double counting in GDP calculations; hence, only final goods are included, excluding intermediate goods.

Components Not Counted in GDP

• Intermediate Goods: Goods produced but not sold directly to the end consumer.

• Time Period for GDP Calculation:

  • Usually defined on an annual basis but can be split into quarters for detailed analysis.

Items Excluded from GDP Measurement

• Resale Transactions: Sales transactions for used items.

  • Any commissions associated with these resale transactions are also not included in GDP.

• Home Production: Activities related to household production that do not go through the market are excluded.

• Illegal Production: Economic activities that occur 'off the books' such as illegal production and underground economy activities are not counted.

• Financial Transactions: Purely financial transactions, which do not involve the production of new goods and services, are excluded from GDP.

• Depreciation and Loss of Value: The economic loss value or depreciation of existing assets is also not counted as part of GDP.