Warm Up 10/1/13

1. What do you think is the richest country in the world today?

2. How do you think economists should measure a country’s wealth?

We will take some notes today

• Microeconomics – study of individuals and the economy

• Macroeconomics – study of large organizations and countries and the economy

• Finance – study of investment and credit

Finished with Microeconomics

Gross Domestic Product

• A measure of a country’s economy

GDP

• All consumer spending within a country in a certain year, month or quarter

GDP• All private investment

within a country in a certain year, month or quarter

• IOW: (saving)

GDP

• All net exports from a country in a certain year, month or quarter

• Exports = goods shipped to other countries

• Imports = goods brought into a country from another country

GDP• All government

spending in a country in a certain year, month or quarter

• Examples: education, military, welfare, social security, roads, healthcare, etc

GDP

• What economic activity did I leave out?

• 2 ways GDP might be misleading?

GDP per capita• Population measuring:

– Divide GDP by population

  GDP per capita $s   GDP per capita $s

Luxembourg 57 704 EU (established 15 countries)

28 741

United States 39 732 Germany 28 605

Norway 38 765 Italy 27 699

Ireland 35 767 Spain 25 582

Switzerland 33 678 Korea 20 907

United Kingdom 31 436 Czech Republic 18 467

Canada 31 395 Hungary 15 946

Australia 31 231 Slovak Republic 14 309

Sweden 30 361 Poland 12 647

Japan 29 664 Mexico 10 059

France 29 554 Turkey 7 687 

Source: OECD World Economic Factbook, 2006 edition

GDP Calculation

Y = C + I + E + G

where

Y = GDP

C = Consumer Spending

I = Investment

E = Exports - Imports

G = Government Spending

United States GDP 2003

Y = C + I + E + G

$$ in Billions

Consumer Spending = $7605

Investment = $1606

Exports = $1021

Imports = $1508

Government Spending = $2017$7605 + 1606 + (1021-1508) + 2017 = $10,741 (2003)

Netherlands GDP 2003

Y = C + I + E + G

$$ in Billions

Consumer Spending = $400

Investment = $104

Exports = $339

Imports = $305

Government Spending = $131$400 + 104 + (339-305) + 131 = $669 (2003)

Per capita: 669,000,000,000/16,000,000 = $41,812.50

16 million Dutch citizens

3. Calculate the GDP for the Netherlands4.Calculate the GDP/capita

5.How can GDP be a limited measurement?