GDP

GROSS DOMESTIC PRODUCT

DEFINITION

• BASIC MEASURE OF NATIONAL ECONOMIC OUTPUT. THE VALUE, EXPRESSED IN DOLLARS, OF ALL FINAL GOODS AND SERVICES PRODUCED IN AN ECONOMY IN A GIVEN YEAR.

• TOTAL MARKET VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED ANNUALLY IN A COUNTRY.

• IN THE UNITED STATES, GOODS AND SERVICES PRODUCED FOR HOUSEHOLD CONSUMPTION ACCOUNT FOR APPROXIMATELY TWO-THIRDS OF TOTAL OUTPUT.

• GOODS: THINGS WE CAN USE, TOUCH, AND SEE.

• SERVICES: ACTIVITIES PEOPLE DO FOR US.

ACTIVITY

• PLEASE GET IN TO GROUPS OF THREE OR FOUR.

• MAKE A LIST OF ALL THE FINAL GOODS AND SERVICES THAT YOU USED FROM THE TIME YOU WOKE UP YESTERDAY TO THE TIME YOU WENT TO BED.

• COMBINE INFORMATION TO MAKE A GROUP LIST.

• WE WILL SHARE.

• HTTP://WWW.ECONEDLINK.ORG/INTERACTIVES/INDEX.PHP?IID=204&TYPE=STUDENT

• READING: PAGE ONE ECONOMIC NEWSLETTER.

• PLEASE ANSWER QUESTIONS.

CALCULATING GDP

1. CONSUMPTION – MANY OF THE GOODS AND SERVICES PRODUCED ARE PURCHASED BY CONSUMERS. THIS IS CONSUMER SPENDING ON FINAL GOODS AND SERVICES, SUCH AS FOOD, EDUCATION, COMPUTERS, GASOLINE, AND MEDICAL EXPENSES. FINAL MEANS SOLD AT THE END USER.

2. INVESTMENT – PURCHASES MADE BY INDUSTRY IN NEW PRODUCTIVE FACILITIES, OR THE PROCESS OF “BUYING NEW CAPITAL AND PUTTING IT TO USE.” EXAMPLES ARE A NEW TRUCK, A FACTORY, OR BUYING NEW SOFTWARE. CHANGES IN INVENTORIES ARE ALSO COUNTED. NOT MEAN BUYING STOCKS OR BONDS OR PUTTING MONEY IN A SAVINGS ACCOUNT.

3. GOVERNMENT PURCHASES – WHAT THE GOVERNMENT BUYS WITH YOUR TAX MONEY. SPENDING ON ALL LEVELS OF GOVERNMENT SUCH AS POLICE AND FIREMEN, WEAPONS FOR THE MILITARY AND INFRASTRUCTURE.

4. EXPORTS (NET EXPORTS) – DIFFERENCE BETWEEN THE VALUE OF ALL EXPORTS AND THE VALUE OF ALL IMPORTS. IF EXPORTS EXCEEDS IMPORTS, IT ADDS TO THE GDP. IF NOT, IT SUBTRACTS FROM THE GDP. THUS EVEN IF A NATION’S PEOPLE WORK VERY HARD TO PRODUCE PRODUCTS FOR EXPORTS, BUT STILL IMPORTS MORE THAN THEY EXPORT, THE NATION’S GDP WILL BE NEGATIVELY IMPACTED.

• GDP= C + I + G +E

GDP & UNEMPLOYMENT

• THE COUNCIL OF ECONOMIC ADVISERS, THE PEOPLE WHO ADVISE THE WHITE HOUSE OF ECONOMIC MATTERS, DEFINES POTENTIAL GDP GROWTH AS “THE RATE OF GROWTH OF REAL GDP THAT COULD BE SUSTAINED WITH THE ECONOMY AT FULL EMPLOYMENT AND STEADY INFLATIONS.”

• THUS NEED THE UNEMPLOYMENT RATE TO PROJECT THE GROWTH OF GDP