Gross Domestic Product GDP The measures were developed in the 1930s Originally the Gross National Product GNP was used Since the 1990s the GDP has been the official measure The GDP is measured quarterly ID: 431346
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Gross Domestic ProductSlide2
Gross Domestic Product (GDP)
The measures were developed in the 1930’s.
Originally the Gross National Product (GNP) was used.
Since the 1990’s the GDP has been the official measure.The GDP is measured quarterly.Slide3
GDP
Gross-total before adjustments.National-Production owned by U.S companies
Domestic-production in the U.S, even if foreign owned.Slide4
GDP
GDP defined is the total value of all final goods and services produced in a given year. It includes all goods and services citizen or foreign supplied in the USA.
GDP measurement is a monetary amount
Why? As the GDP of an economy increases, we have economic growth, and is a tracking of long term economic growth.Limitations: does not measure quality of life, leisure time, crime, economic variables.Slide5
There are two ways to calculate the GDP
The Income approach:
W+R+I+P+Sa
=GDPW=wages, compensationR=rents, lease paymentsI=interest, savings and bond payments
P=profits, corporate income tax, dividends and undistributed corporate profitsSa=statistical adjustments-Indirect business taxes(sales, excise, property, customs, licenses, duties), consumption of fixed capital(CFC) is depreciation, net foreign income.Slide6
There are two ways to calculate the GDP
The expenditure approach:
C+Ig+G+Xn
=GDPC=personal consumption of finished goods and servicesIg=gross private business investment, construction of new houses, factory equipment
G=governmentXn=net foreign factor of trade (exports-imports) if Xn is negative, a trade deficit existsSlide7
What is
not counted?
Used goods, secondhand sales
Gifts, transfer payments(social security, welfare, veterans payments)Stock equity and securities purchased.Unreported business activities done for cash.Illegal, black market activities.Financial transactions between banks and business“intermediate goods”
‘non-market’ activities-volunteer or family work.We only want to count things once!!!!!!!!Slide8
Fluctuations in the GDP
Leakages
are uses of household income not used for consumption in the GDP.
Leakages are losses of $$$$Leakages include:Taxes-governmentSavingImports-income created by one economy to purchase output form another.Slide9
Business cycle and GDPSlide10
Fluctuations in the GDP
Injections (money into economy) are expenditures by either:
Government, Business or foreign sectors on domestic goods and services.
This includes exports which inject money (when the dollar is weak on the world market, exports increase because American goods are cheaper.)The government can spend the taxes it collects by making government purchases.
Business spends profits on investment, but can retain some profits and capital consumption for later use.