Gross Domestic Product (GDP)

GDP is the market value of all final goods and services produced within a nation in a year

GDP is an aggregate measure of the economy

Cartogram map showing other countries’ GDP relative to U.S. States

GDP vs. GNP

Until the 1990’s, Gross National Product (GNP) was the federal measure of the economy.

GNP=Measure of the value of all goods & services produced by US owned firms whether domestically produced or manufactured abroad.

GDP & the Quarter System

GDP is officially measured in “quarters” of years:

Quarter 1 = Jan/Feb/Mar

Quarter 2 = Apr/May/June

Quarter 3 = July/Aug/Sep

Quarter 4 = Oct/Nov/Dec

Measuring GDP

The Expenditure Approach (aggregate spending)

C + Ig + G + Xn = GDP (nominal)

Consumption (C)

Consumer spending on Durable goods (cars, appliances…) Non-durable goods (food, clothing…) Services (plumbing, college…)

Consumer spending is the largest component of U.S. GDP.

Gross Private Investment (Ig)

Spending in order to increase future output or productivity Business spending on capital New construction

Homes

Commercial Real Estate Development

Change in unsold inventories

Government Spending (G)

All levels of government spending on final goods and services and infrastructure count toward GDP.

Government transfer payments do not count toward GDP.

Net Exports (Xn)

Exports – Imports X – M Exports create a flow of money to

the United States in exchange for domestic production.

Imports create a flow of money away from the United States in exchange for foreign production.

The Income approach

r + w + I + p = GDP (nominal)

Rent + wages + interest + profits or…

The Factors of Production…

Yeah this exists…

2 more things

Nominal vs. Real GDP Nominal is not adjusted for inflation Real is

GDP per capita GDP per person Considered a better measure of

economic wellbeing

What does not count…

Used goods/Second-Hand Goods Gifts or ‘Transfers’ (private or

public) Stock/Equity/Security purchases

(Places like NYSE or NASDAQ) Unreported Business Activities

conducted in “cash”

(ex. Unreported tips…)

What does not count…cont.

Illegal activities

(Black Markets) Financial Transactions between

banks and Businesses Intermediate goods (no double

counting) Non market activities like

volunteer and family work