Ch. 12 Section 1 Gross Domestic Product

Ch. 12
Section 1
Gross Domestic
Product
Guiding Questions
 Why
does it matter how the economy is
doing to the individual?
 How
do we determine if the economy is
healthy?
Gross Domestic Product

Gross Domestic Product –


The dollar value of all final goods and services produced
within a country’s borders in a given year.
Terms Defined:




Dollar Value – average price of all goods.
Final Goods/Services – only final products are counted,
not intermediate products.
Within the borders – no outsourced goods are counted.
In a Given Year – Only this year’s products/services are
counted.
What does the GDP Show?

GDP measures the amount of money brought into
a nation in a single year through the selling of that
nation’s goods and services.

GDP is a measurement of how well a nation’s
economy is doing for a particular year. A high GDP
means the nation is doing well economically. A low
GDP means the nation is doing poorly
economically.
What does GDP show?
 Basically,
gross domestic product tracks
exchanges of money.
 To
understand GDP, you need to
understand which exchanges are
included in the final calculations—and
which ones are not.
What is GDP?

Dollar Value
 YES – cash value of all
goods and services
 NO – costs of producing
those things

Final Goods/Services
 YES – Goods/Services
offered to consumers
 NO – Intermediate
Goods

Within a Country’s Borders
 YES – American or
foreign countries
producing in the US
 NO – American
companies producing
overseas.
How to Calculate the GDP –
Expenditure Approach
4
Components are included in the calculations
of the GDP:




Consumption (C) – durable and nondurable
goods
Investment (I) – Business goods and services
Government (G) – Government Employees, Gov’t
purchases.
Net Exports – (NE) – Exports minus the cost of
imports
 GDP
= C + I + G + NE
GDP = C + I + G + NE
 CONSUMPTION



Largest Aspect of GDP
Durable Goods = Lasting products
Nondurable goods = Food, gasoline, shoes
 INVESTMENT



=C
= I = Business Purchases
Business investment into equipment
Purchasing a new mine, upgrading software
NOT purchasing financial products (savings)
GDP = C + I + G + NE
 GOVERNMENT


Government expenditures on final goods.
Salaries of public servants, purchases of weaponry
 NET



SPENDING = G
EXPORTS = NE
Exports – Total production shipped elsewhere by
businesses.
Imports – Total purchases from other countries.
Net = Exports minus Imports.
Limitations of GDP

Nonmarket Activities—GDP does not measure
goods and services that people make or do
themselves.

The Underground Economy—GDP does not
account for black market activities or people paid
“under the table” without being taxed

Negative Externalities—unintended economic side
effects, like pollution or poverty, are not subtracted
from GDP

Quality of Life—a high GDP does not necessarily
mean people are happier. Why is this?
GDP per capita

GDP per capita is gross domestic product divided
by midyear population.

So this shows the GDP per person in the economy.

Higher value means higher GDP and economic
success.

Using growth in GDP per head rather than crude
GDP growth reveals a strikingly different picture of
other countries’ economic health
GDP 2014
Rank
Country/Region
GDP (Millions of US$) [trillions]
World[9]
77,269,168
European Union[n 1][9]
18,527,116
1
United States
17,348,075
2
China
10,356,508
3
Japan
4,602,367
4
Germany
3,874,437
5
United Kingdom
2,950,039
6
France
2,833,687
7
Brazil
2,346,583
8
Italy
2,147,744
9
India
2,051,228
10
Russia[n 2]
1,860,598
11
Canada
1,785,387
12
Australia
1,442,722
13
South Korea
1,410,383
14
Spain
1,406,538
15
Mexico
1,291,062
US GDP in Context
13
GDP per capita 2014
GDP per Capita 2014
Rank
Country
US$
1
Luxembourg
103,187
2
Switzerland
82,178
3
Qatar
78,829
4
Norway
76,266
5
United States
55,904
6
Singapore
53,224
7
Australia
51,642
8
Denmark
51,424
9
Iceland
51,068
10
San Marino
49,139
11
Sweden
48,966
12
Ireland
48,940
13
Netherlands
44,333
14
United Kingdom
44,118
15
Canada
43,935
https://en.wikipedia.org/
wiki/List_of_countries_by_
GDP_(nominal)_per_capit
a
Overall
 What
does the GDP show about
the nation’s economy?
 How
do the GDP and the GDP
per capita change the
conclusions about a country’s
health economically?