GDPhttp://www.youtube.com/watch?v=yUiU_xRPwMc

REMEMBER THE 7 GOALS OF US ECONOMY? 1. Economic freedom: individual freedom to make own decision 2. Economic efficiency: decision must lead to more gains than

loss 3. Economic equity: strong sense of justice, impartiality, &

fairness 4. Economic security: protection from adverse economic events

such as layoffs and illnesses

5. Full employment: economic system must provide enough jobs

6. Price stability: stable prices lead to certainty in the future, and makes budgeting easier

7. Economic growth: necessary to meet everyone's rising expectations and necessity for more goods & services

ECONOMIC GROWTH! Necessary to meet everyone's rising expectations and necessity for more goods & services

How do you measure that goal? GDP!

DEFINITION OF GDP Gross Domestic Product (GDP)- The $$ amount of all finished goods and services that are produced within a countries boundaries, regardless of who!

AKA: Aggregate Supply We want this # to get larger! Current US GDP = $16 Trillion

WHO CREATED THIS CONCEPT? WHEN? Who: Simon Kuznets & The U.S

Department of Commerce When: They came up with it during

Depression/WWII. Why: measure of national output;

created for measuring the overall health of the country’s economy

How: through quarterly (3 months) survey reports conducted by Dept. Commerce; under constant review & revision!

HOW IS GDP CALCULATED? GDP = C + I + G + (X-M) C = Consumer Spending I = Investment made by industry (businesses)

G = Government Spending X - M = The value of exports minus imports. Net exports may be negative.

FACTORS EXCLUDED FROM GDP

1. INTERMEDIATE PRODUCTS Def: products used to make other

products already counted in GDPEx. Tires that Honda has on new cars

(not counted)Ex. Replacement tires after they wear out

(counted) These products are bought with the

intention to be further processed & therefore not counted in GDP.

If counted then GDP is double counting! www.youtube.com/watch?v=dlBbzh00b70

2. SECONDHAND SALES A second-hand (used) good is one that

is being purchased by or otherwise transferred to a second or later end user

Secondhand sales are NOT counted when determining GDP because nothing new is being producedEx. Mr. Pak’s love of shopping at CD

warehouse vs. buying them at BestBuy! http://www.youtube.com/watch?v=8et6d6VuZ_0

OTHER FACTORS EXCLUDED FROM GDP 3. Non-market activities (stay at home

parent)Mom’s role as a house wife cant be

measured in $$$ value (between $80,000 to $120,000)

4. Transfer payments: (payments such as social security or

unemployment) 5. Underground activities:

Gambling, prostitution, smuggling, drugs, counterfeiting (how much cocaine did you sell?)

http://www.youtube.com/watch?v=YWu4Vcsem5E

LIMITATIONS OF GDP

LIMITATIONS OF GDP!1. Based on a general sample conducted

every three months with large margin for error

2. Does not account for quality of life and well being; how much leisure v. work

3. GDP does not capture the non-paid sector: volunteer work, the informal sector (and black market), raising children, and household duties. GDP can grown by monetizing work that previously was done for free, but this does not necessarily increase well-being.

http://www.youtube.com/watch?v=5OQzot8Utu4

GDP VS. GNP! GNP(Gross National Product)-What we used

to use until early 1990s! The difference:

GNP (National): only tracks a country’s goods & services (American made goods) across the world!

GDP: (domestic): only tracks goods & services made inside of a country’s borders regardless of who is making it! (ex. Honda plants here in US)

Which is preferred: As a measure GDP because it is easier to track

goods in a country versus keeping track around the world.

GLOBAL FACTS ON GDP

US GDP (1950-2012) & GNP (1960-2012)

US VS. GLOBAL GDP & GNPGNP:

http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gnp_mktp_pp_cd&hl=en&dl=en#!ctype=c&strail=false&bcs=d&nselm=s&met_y=ny_gnp_mktp_pp_cd&scale_y=lin&ind_y=false&ifdim=region&hl=en_US&dl=en&ind=false

http://www.youtube.com/watch?v=KegpBwlij5U

GDP:

http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&hl=en&dl=en#!ctype=c&strail=false&bcs=d&nselm=s&met_y=ny_gdp_mktp_cd&scale_y=lin&ind_y=false&ifdim=region&hl=en_US&dl=en&ind=false