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Gross Domestic Product
Also known as
GDP
Gross Domestic Product (GDP)
• The Market Value of all final goods and
services produced in a country in a year
• If someone buys a brand new car in 2004
and then sells it in 2008 which year does
that car count towards GDP?
• If a good is produced in Russia and
bought in the U.S. does it count towards
GDP?
Gross Domestic Product (GDP)
• Final Goods and services have
been purchased for final use.
They are not for resale or further
manufacture?
• Lumber used to build a house?
• Steel used to build a car?
• School building?
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Gross Domestic Product (GDP)
• Economist often measure GDP by totaling
the money spent on four major categories
of goods and services
•
•
•
•
C-Consumption (Consumer Spending)
I-Investment (Spending by Businesses)
G-Government (Spending by government)
(X-M)-Net Exports (exports-imports)
Gross Domestic Product (GDP)
• C-Consumer spending
-Spending by households on
goods and services. Includes
spending on things such as cars,
food, and visits to the dentist.
Makes up 2/3 of GDP (largest)
Gross Domestic Produce GDPs
•I- Investment, business,
industrial spending. Spending
by businesses on machinery,
factories, Equipment, tools,
and construction of new
buildings
Gross Domestic Product (GDP)
• G- Government spending
• Spending by all levels of government
on goods and services. Includes
spending on the military, schools and
highways
Gross Domestic Product (GDP)
• (X-M) Net exports
• Exports minus imports
• Spending by people abroad on U.S.
goods and services (exports) minus
spending by people in U.S. on foreign
goods and services (Imports or M)
Gross Domestic Product (GDP)
• Net Exports is always negative for U.S.
• Imports decrease GDP, Exports increase it
• To find GDP, use this formula
• GDP=C+I+G+(X-M)
Try it out
• Due to tax cuts, consumers buy more new
cars
• Worried about an increasing budget
deficit, the government decides to buy
fewer military planes
• Increasing prices in the U.S. encourage
Americans to buy more foreign goods
• Due to tax increase, consumers spend
less on vacation travel
Gross Domestic Product
• Due to increased incomes, Europeans buy
more U.S. goods and services
• A foreign government imposes a tariff that
discourages its citizens from buying goods
from the U.S.
• Businesses are optimistic about the future
and increase construction of new factories
GDP Gross Domestic Produce
• Many more Americans decide to buy Japanese
cars rather than American Cars
• Households worry about future unemployment
and decide to spend less
• Because interest rates are increased,
businesses cut back on spending for new
machinery
• Consumers feel good about the future and take
out loans to buy more durable goods such as
washing machines
Gross Domestic Product (GDP)
• Decreases in interest rates encourage
businesses to take out loans to construct
• To fight unemployment, the government decides
to hire more people to work in national parks
• Tax cuts to businesses give businesses
incentives to buy more computers
• To stimulate the economy and provide jobs, the
government builds more bridges in California
Gross Domestic Product GDP
• The formula for GDP is known as “The
Output Expenditure Model.”
• Think of if like you would the like a formula
in math or science
• Output Expenditure model is
GDP=C+I+G+(X-M)
GDP Per Capita
• GDP Per Capita-The gross domestic product
(GDP) is one of the primary indicators of a
country's economic performance. It is calculated
by either adding up everyone's income during
the period or by adding the value of all final
goods and services produced in the country
during the year. Per capita GDP is sometimes
used as an indicator of standard of living as well,
with higher per capita GDP being interpreted as
having a higher standard of living
Read more:
http://www.investopedia.com/terms/p/per-capitagdp.asp#ixzz1jFoKHdKt
GDP Per Capita
• High GDP’s per capita usually represent a
high standard of living.
• It has been shown that high GDP’s per
capita
• are congruent with High life expectancy,
high literacy rates, and low infant mortality
rates
http://www.medterms.com/script/main/art.a
sp?articlekey=3967
GDP PER CAPITA
• Discussion question- Does high literacy
rates lead to higher GDP Per capita or
does high GDP per capita lead to High
literacy rates?
LOWEST GDP PER CAPITA
• The Congo
• Could or would you do this for 50 cents?
• http://www.rescue.org/where/democratic_r
epublic_congo
Quiz tomorrow
• What is the Output expenditure model?
• What are the categories of GDP?
• Be able to identify what category an expenditure
would fit in.
• Be able to identify GDP Per capita
• What are the biggest categories of GDP
• How is it calculated
• What does GDP Per capita say about a country?