Step 9: GDP. Not that kind of gross.

GDP

-Gross Domestic Product

-Total dollar value of all final goods and services produced within a country's borders within a given year

-Any products and income produced on American soil
-Note: Gross=Total

GDP Formulas

-Two approaches
-Expenditure GDP=Income GDP

• Expenditure Approach

           -add up the market value of all domestic expenditures made in final goods and services in a single year

C  +  Ig  +  G  +  Xn  =  GDP

 -Consumption

                      -contributes 67% to the economy

                      -purchased finished goods and services

-Ig (Gross Private Domestic Investment)

                      -factory equipment maintenance

                      -new factory equipment

                      -new construction housing

                      -unsold inventory of products built in a year

-Government Spending

                      -School District counted a gov't

-Net Exports

                      -Exports - Imports = Net Exports

-Excludes:

• Used/Secondhand Goods
     -because a good is used, it has already been counted in the year it was produced's GDP
• Intermediate Goods

                      -goods and services purchased for resale or for further processing/manufacturing

                      -avoid 2x or multiple counting                      

• Non-market Activity

                      -illegal drugs, prostitution

                      -unpaid work, babysitting

• Financial Transactions

                      -stocks, bonds, real estate

                      -excluded b/c there is nothing being produced

• Gifts or Transfer Payments

                      -Private: no output, transfers funds from a private individual to another; scholarships
                      -Public: recipients contribute nothing to current output or production; welfare, social security

• Income Approach

           -add up the income earned by households in a single year

W  +  R  +  I  +  P  +  Statistical Adjustments  =  GDP

           -Wages

           -Rents

           -Income

           -Profits/Proprietor's Income

Nominal GDP

-Value of output produced in current prices
-Can increase from year to year if either price or output increases
-calculated by Price x Quantity

Real GDP

-Value of output produced in constant or base year prices
-Adjusted for inflation
-Can increase from year to year only if output increases
-calculated by Base Year Price x Quantity

GNP

-Gross National Product

-Total value of all final goods and services produced by Americans in a year

-Includes products outside US borders.