UNIT IV –WORLD ECONOMY LESSON 1 –WHAT IS GDP AND WHY IS IT SO IMPORTANT?

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Gross Domestic Product

• The gross domestic product (GDP) is one of the primary indicators used to measure the health of a country’s economy.

• It represents the total dollar value of all goods and services produced over a specific time period –you can think of it as the size of the economy.

Gross Domestic Product

Measuring GDP

• Measuring GDP is complicated, but at its most basic, the calculation can be done in one of the two ways:

• Income approach: adding up what everyone earned in a year.

• Expenditure method: adding up what everyone spent in a year.

Income Approach

• The income approach, which is sometimes referred to as GDP (I), is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firm, and taxes less an subsidies.

Expenditure method

• The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports.

Terms and definitions

• gross profit: The gross profit of a business is how much money it is making from selling things without subtracting the cost of making the things it is selling.

• subsidy: a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive

Terms and definitions

• globalization: globalization is the way that local or national ways of doing things become global, that is, done together around the world. It is about economics or trade, technology, politics, and culture.

• revenue: income that a company receives from its normal business activities, usually from the sale of goods and services to customers. It does not include the cost required to create these goods and services, which is considered "profit".

Terms and definitions

• tax: money that people are forced to pay to the government.

• taxpayer: a person who pays taxes.

• Investment: Investment or investing means that an asset is bought, or that money is put into a bank to get a future interest from it. Investment is total amount of money spent by a shareholder in buying shares of a company.

Terms and definitions

• International trade: International trade is when one country trades with another, also known as importing and exporting goods. Some countries use protectionism so their people won't import so much.

GDP’s effect in our Economy

• Economic production and growth, what GDP represents, has a large impact on nearly everyone within taht economy.

• When economy is healthy you will see low unemployent and wage increases as businesses demand labor to meet the growing economy.

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Classification of the Countries of the World1. Developed countries: Canada, United States,

European Union members (Italy, France, Spain, England, etc).

2. Countries with an economy onsistently and fairly strongly developing over a longer period: China, India, Brazil, South Africa, Costa Rica, Mexico, etc.

Classification of the Countries of the World

3. Countries with a patchy record of development: Most countries in Africa, Central America and the Caribbean, excepting Jamaica.

4. Countries with long-term civil war: Somalia, Sudan, Burma etc.

Third World Today

• The often used term “Third World” today mostly refers to underdeveloped o better developing countries.

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International Trade

• International trade is the exchange of capital, goods, and services across international borders or territories.

• Without international trade, nations would be limited to the goods and services produced within their own borders.

International trade vs. Domestic trade

• International trade is, in principle, not different from domestic trade. The main difference is that international trade is typically more costly than domestic trade.

• A border tipically imposes additional costs associated with country differences such as language, the legal system or culture.

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Economic Indicators

• An economic indicator is a statistic about an economic activity, they allow analysis of economic performance and predictions of future performance.