Economic Indicators and GDP

Chapter 12 Section 1

National Income Accounting◦ Look at production, income, investment, and

savings◦ Department of Commerce

Gross Domestic Product (GDP)

Defining GDP The dollar value of all final goods and services

produced within a country’s borders in a given year◦ Dollar value – total cash value ◦ Final Goods and Services – no intermediate goods◦ Produced within a country’s borders◦ In a given year – excludes resells (ex: cars)

GDP

Expenditure Approach◦ Consumer g&s

Durable and nondurable goods

◦ business g&s◦ government g&s◦ net exports

Exports - imports

GDP

Income Approach◦ Add up all the incomes

in the economy minus the dollar value for the goods and services purchased from other firms (material costs)

◦ In theory, Income and Expenditure Approach should give you the same total

GDP

Nominal GDP◦ GDP calculated in current prices

Real GDP◦ GDP expressed in constant, or unchanging, prices◦ Use a base year of prices to compare things,

giving a more accurate depiction of the economy◦ Changes in price should not affect GDP

Nominal vs. Real GDP

Nonmarket Activities The Underground Economy Negative Externalities Quality of Life

◦ More stuff = better life????

Limitations of GDP

Gross National Product (GNP)◦ Annual income earned by a nation’s firms and citizens◦ Does not account for depreciation of capital

equipment Net National Product (NNP)

◦ GNP – cost of depreciation National Income (NI) Personal Income (PI)

◦ NI – reinvested profits, income taxes, SS taxes Disposable Personal Income (DPI)

◦ Money you have to spend after taxes

Other Output and Income Measures

Aggregate Supply◦ Supply curve for the entire economy◦ Compare Real GDP (x-axis) and price level (y-axis)

Price level – the average of all prices in the economy Aggregate Demand

◦ The amount of goods and services in the economy that will be purchased at all possible price levels

Influences on GDP

Aggregate Supply and Demand