Unit 2: GDP

Gross Domestic Product (GDP)- Total market value of all final goods and services produce within the country border within a given year .

Gross Natural Product(GNP) - It's a measure what the citizens product and whether they produce these items in their border.

C= Consumption Expenditures(67%)
IG= Gross Private Domestic Investment(17%)
G= Government Spending (20%)
Xn= Net Exports(exports-imports)(-4%)

C+IG+G+Xn=GDP
IG

  1. Factor equipment maintenance 
  2. New  factor equipment 
  3. Construction of housing 
  4. Unsold inventory of product built in a year 
                                          Not Counted in GDP
  1. Used or second second hand goods - avoid double or multiple counting 
  2. Gifts or transfer payments (Public- social security, welfare or Private- scholarships )
  3. Stocks or bonds ( not counted ) Purely financial transaction , Their is no output being produce
  4. Unreported business activities (tips)
  5. Illegal activities( Underground)
  6. Non-market activities(ex. babysitting,volunteer)
  7. Intermediate goods (ex. all part assembly in a car to be sold)
Transfer payments - transfer money from one person to another (produces no output )

                                 Expenditure Approach and Income Approach
Expenditure Approach - adding up all the product of goods and services produce in a given year.

C+IG+G+Xn=GDP

Income Approach - ask all consumers how much money they make in a given year.

W=Wages ( Consumption of employees )
R=Rents
I=Interests
P=Profit

W+R+I+P+Statistical adjustments

Trade: Exports-Imports (Positive surplus , Negative Deficit )

Budget : Gov't Purchases of goods and services + Gov't transfer payments - Gov't tax and fee collection   (Positive Deficit , Negative surplus  )

National income 
1. Compensation of employees+Rental Income+Interest Income+Proprietors income +Corporate profits

2. GDP-Indirect business taxes- Depreciation-Net foreign factor payment

Disposable Personal Income 
National income - personal household taxes+ Gov't transfer payments

Gross National Product (GNP)

 GDP+Net foreign factor payment

Net National Product (NNP)

 GNP-depreciation

Net Domestic Product (NDP)

GDP-depreciation

Depreciation( Consumption of fixed capital )

Net private domestic investment + Depreciation = Gross Private Domestic Investment (IG)

                                           Real GDP vs. Nominal GDP
Real GDP- Value of output produced in constant ( base year ) prices
PXQ
Nominal GDP- Value of output produced in current year prices
PXQ

Nominal GDP- can increase from year to year either output or price increases.
Real GDP- can increase from year to year only if output increase.
 

  •  in the base year the current price will be equal to the constant/ base year price . In years after the base year nominal GDP will exceed real GDP.
  • in years before the base year real GDP exceed nominal GDP.

Price index - measure inflation by tracking chances in the price of a market basket of goods comparing it within the base year.
Consumer price index (CPI)
Price of year 2 - price of year 1/Price of Year x 100

CPI - measures the cost of the market basket of a typical urban american family .

GDP Deflator- a price index used to adjust from normal to real GDP
Nominal GDP/Real GDP x100
  • in the base year the GDP Deflator will always be 100
  • years after the base year the GDP deflator is greater than 100
  • years before the base year the GDP delator less than 100



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