Transcript GROSS DOMESTIC PRODUCT

MICROECONOMICS
• The part of economics
concerned with individual
decisions made by
households and businesses,
as well as individual markets
MACROECONOMICS
• The part of economics that is concerned
with the economy as a whole
• National Economic measurements
– Gross Domestic Product (GDP)
– Inflation
– Unemployment
– Business Cycle
GROSS DOMESTIC PRODUCT
• The primary measure of the
overall output of the U.S.
economy
• The total market value of all final
goods and services produced in a
given year within the United
States
• Includes U.S. and foreign owned
firms
GROSS DOMESTIC PRODUCT
• GDP is a monetary measure
• U.S. Department of Commerce
– Bureau of Economic Analysis
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1929 – $103.6 Billion
1930 - $91.2 Billion
1931 - $76.5 Billion
1932 - $58.7 Billion
1945 - $223.1 Billion
GROSS DOMESTIC PRODUCT
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1955 - $414.8 Billion
1965 - $719.1 Billion
1975 - $1.64 Trillion
1985 - $4.22 Trillion
1995 - $7.40 Trillion
2000 - $9.82 Trillion
GROSS DOMESTIC PRODUCT
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2001 - $10.13 Trillion
2002 - $10.47 Trillion
2003 - $10.96 Trillion
2004 - $11.69 Trillion
2005 - $12.42 Trillion
2006 - $13.18 Trillion
2007 - $13.81 Trillion
2008 - $14.26 Trillion
GROSS DOMESTIC PRODUCT
• GDP only measures final goods and
services in order to avoid multiple
counting
• In other words, we only count the
final value of the Ford automobile,
not the tires, brakes, stereo
equipment, etc…
GROSS DOMESTIC PRODUCT
• Once again, GDP is a measure of
productive output
• The following do NOT count
toward GDP because they do not
involve the output of final goods
and services
GROSS DOMESTIC PRODUCT
• Purely Financial Transactions
–Social Security payments
–Welfare payments
–Veterans payments
GROSS DOMESTIC PRODUCT
• Private Transfer Payments
– Cash gifts from your parents/relatives
• Stock Market Transactions
– Buying and selling of securities
– ***Paying for the service of a stock broker
IS counted
GROSS DOMESTIC PRODUCT
• Secondhand Sales
–Used car sales
–Garage sales
GROSS DOMESTIC PRODUCT
• There are two different ways to calculate
GDP
• We can look at the sum of all money
spent in buying the output –
Expenditures Approach
• Or, we can look at the income derived
from producing the output –
Income Approach
EXPENDITURES APPROACH
• C + I + G + Xn
•Consumer spending
• Business Investment
•Government purchases
• Exports (Net)
Two Approaches to GDP
Expenditure
Approach
Income
Approach
Consumption by
Households
Wages
Investment by
Businesses
Rents
+
+
Government
Purchases
+
Net Exports
(Exports
Minus
Imports)
G
= D=
P
+
+
+
Interest
Profits
C - Consumption
• Consumer purchases of goods
and services
• Aka – Personal Consumption
Expenditures
I
g–
Gross Private Domestic
Investment
• All final purchases of machinery,
equipment, and tools by businesses
• All construction, including household
construction
– Why? It could be used to provide goods or
services
• Changes in business inventories
– Increases are unused output
G – Government Purchases
• Government purchases of goods and
services
• Government spending on infrastructure
(roads, schools, etc…)
• Does NOT include transfer payments
like social security payments or
unemployment insurance payments
X – Net Exports
n
• Exports – Imports
• This tends to be a negative number.
• C + Ig + G + Xn
• What is the largest component, by far?