Transcript Gross Domestic Product

Gross Domestic Product
What’s a Gross
Domestic Product?
Broccoli?
I was gonna say
“Preparation H.”
GDP
Is the most important measure of economic
activity.
Is a measure of the income and expenditures
of an economy.
The Circular-Flow Diagram
Revenue
Goods &
Services sold
Market for
Goods
and Services
Firms
Inputs for
production
Wages, rent,
and profit
Spending
Goods &
Services
bought
Households
Market for
Factors
of Production
Labor, land,
and capital
Income
GDP is used to compare
economies world wide
The Measurement of GDP
GDP is the dollar value of all
final goods and services
produced within a country in a
given year.
The Measurement of GDP
•
Production is measured as a
$$$ dollar value $$$:
the price that Consumers,
Businesses, Government and
International buyers pay or
earn for goods and services.
EXPENDITURES APPROACH
Consumer Spending
+Business Spending
70% (Consumption)
17 %
(Investment)
+Government Spending 18%
+Foreign Spending -5% (Net Exports)
Net Exports = Exports – Imports
[Imports represent production outside a country]
THE INCOME APPROACH
Wages
+ Rents (income from natural resources)
+ Interest (income from capital investments)
+ Owner’s Income (sole proprietorship
and partnerships)
+ Corporate Profits
- Corporate Income Taxes
- Dividends
- Undistributed Corporate Profits
GDP measures FINAL GOODS not
intermediate goods
Intermediate Goods – components of the final good.
A. Ford buys batteries or tires for its cars.
B. KFC buys chickens to eventually sell to customers.
It includes both tangible GOODS (nondurable
goods: food & clothing, durable goods: cars
and refrigerators) and intangible SERVICES
(haircuts, housecleaning, doctor visits).
It includes goods and services CURRENTLY PRODUCED,
not transactions involving goods produced in the past.
Second Hand Sales – no current production.
A. If a 1957 Chevy is bought in 2009
Chevy
[It has not been produced again so would not count.]
B. Boots produced in 2000 are bought in a Resale Store in 09.
They also have not been produced again.
Salesman’s commission would count.
You are buying his services.
The Measurement of GDP
•
It measures the value of production
WITHIN A COUNTRY’S BORDERS
regardless of who owns the company.
Provo,UT
in Chicago
BMW in Waco
The Measurement of GDP
It measures the value of production
that takes place WITHIN A SPECIFIC
TIME PERIOD, usually a year or a
quarter (three months).
CHANGES IN GDP
The level of output (income and expenditures) is changed
if there is a change in AGGREGATE DEMAND.
Price Level
AS1
b
P2
a
P1
AD2
AD1
o
Q1 Q2
Real Gross Domestic Product
CHANGES IN GDP
The level of output (income and expenditures) is changed
if there is a change in AGGREGATE SUPPLY.
Price Level
AS1
AS2
a
P1
P2
b
AD1
o
Q1
Q2
Real Gross Domestic Product