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Macroeconomic IndicatorsGDP and what it really means!
GDP of various countries around the world! What do you notice?
Gross Domestic ProductThe market value ($) of all final goods and
services produced within a country in a given time period.
http://www.huffingtonpost.com/2014/10/08/china-gdp-tops-us_n_5951374.html
Final vs. IntermediateFinal good or service (included)A good or service that is produced for its final
user and not as a component of another good or service.
Intermediate good/service (not included)
A good or service that is produced by one firm, bought by another firm, and used as a component of a final good or service.
What’s in GDP? Included
Final goods and services only!
Not Included Secondhand sales
Ex. Used clothes, used cars
Intermediate goods Ex. Lead used in pencil
Chores around home Ex. Raking leaves
Do any of these count towards GDP?
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Calculating GDP Expenditure Method
Expenditure Method: When we add up all of the components of the Product Market we can calculate GDP.
GDP per Capita (person) Most meaningful measure Divide Real GDP by population
GDP per capita: China v. US
What is GDP/capita for each country? Why might people in China still not be so bad off despite lower GDP/capita?
http://www.huffingtonpost.com/2014/10/08/china-gdp-tops-us_n_5951374.html
Formulas
1. GDP: 1. Total Product A + Total Product B
(Quantity A x Price A) + (Quantity B x Price B)
2. GDP per capita:1. Total GDP/Population
Let’s try calculating GDP…Country A 10 @ $20
each15 @ $100 each
50 @ $200
20 people
# of pencils made/ price
# of I-pods made/ price
# of Amer. Girl dolls made/ price
Total Popula-tion
Total $ $ $ $ /per capita
How well does GDP measure the welfare of a society (standard of living)?
What items are not included? Non-market transactions
Housework, Self-repairs, Bartering Quality of products Composition of Products
Ex. If country only produces tanks, GDP doesn’t care Underground economy
Informal Economy Tips, babysitting, golf caddying
Black market economy
Practice time!
1. Gibsonvania only produces neckties. They produce 100,000 ties and sell each one for $75. Calculate GDP.
2. There are only 1,576 people living in Gibsonvania. Using your answer from #1, calculate GDP per capita.
3. Company A is offering $184 for $75. Company B is offering $302 for $150. Which company should I invest in? Show me why.
4. Which of the following count towards GDP?1. A Pre-Owned Car2. A Never Used Skateboard
bought at a yard sale3. A New Keychain4. A Gift Certificate given as a
holiday gift
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