Ch. 7 GDP & Economic Growth

GDP - Gross Domestic Product

• Market based economic activity

1. Total market values →

2. All final goods/services →

3. Domestic production →

4. During a period of time

• To calculate GDP = (P₁ x Q₁) + (P₂ x Q₂) + (P₃ x Q₃) . . .

  • P = price

  • Q = quantity

• GDP measures 2 things at once:

  • all incomes in economy

    • Wages/salaries, business profits, interest earnings, rental income

  • all expenditures in economy

    • Consumption expend., investment exp., gov’t exp., net exports (connection bw domestic economy and international economy)

  • total expenditures = total income bc there is buyer/seller in every transaction

Goods & Services

• Intermediate goods/services

  • Ex. Ingredients of big mac: beef patty, frozen fries, buns, coke

• Final goods/services

  • Ex. Big mac meal