GDP

Gross Domestic Product

GDP

• National income accounting- system that collects data on production, income, investment, and savings.

• National Income and Product Accounts- all the above data is stored and analyzed by the US Commerce Department.

• Used to determine Fiscal and Monetary policies of government

GDP

• Gross domestic product-the dollar value of all final goods and services produced within a country in 1 year

• Dollar value is total selling prices of all of goods and services

• Final goods and services are products in final form sold to consumers

• NOT intermediate goods such as steel.

Expenditure Approach

• Output-Expenditure Approach• Economists estimate the annual amount spent

(expenditures) on• 1. Consumer goods and services• 2. Business goods and services• 3. Government Goods and services• 4. Net exports or imports of goods and service• GDP is found by adding up the 4 categroies

GDP

Durable goods- consumer goods with long life ex- refrigerator, cars, DVDNon-durable goods-short term consumer goods such as light bulbs, shoes, food.Economists can also use the income approach**Adding up all the incomes in the economyAdd up the incomes of a country.**Economists actually use both to fine tune final GDP numbers

Nominal vs Real GDP

• Nominal GDP- GDP measured at current prices in that current year. Inflation may skew and make GDP not accurate.

• Real GDP- use of a base year or constant price to calculate GDP. Calculations do not fluctuate with inflation or price increases.

• Must use 2 years to calculate real GDP

Limitations

• Nonmarket activities- GDP does not include services we do for ourselves

• No account of under the table transactions- includes black market but also cash exchanges

• Does not reflect quality of life

Other Measurements

• GNP- gross national product• Annual income earned by U.S. owned firms

and U.S. citizens• Does not account for depreciation of lost

value from wear and tear on machinery• GNP-depreciation=Net National Product• NNP-taxes=National income• Pg 306

What influences GDP

• Aggregate Supply-a supply curve for the whole economy. The total amount of goods and services in the economy available at all possible price levels

• Aggregate Demand- the amount of goods and services in the economy that will be purchased at all possible price levels

• Figure 12.6 shows equilibrium