Gross Domestic Product (GDP) -

Gross Domestic Product (GDP) -

• GDP gross domestic product- total market value of all final goods and services produced within a country's borders with in each year

• GNP gross national product- the sum of all total goods and services produced by residents of a country during a given year. Using foreigners

• Intermediate goods- goods that require further processing before they are ready for final use. Ex: steering wheel, something that you use to make a product

• What’s not included in GDP? 
• 1. used goods/second hand goods (avoid double or multiple counting) 
• 2. gifts or transfer payments - no output from transfer payments (public or private)
• recipients contribute nothing to current production
• ex. scholarships (public)
• ex. welfare or social security (public)
• 3. stocks and bonds - purely financial transactions, no output being produced
• 4. unreported business activity (ex. tips)
• 5. Illegal activity (drugs, prostitution, etc.)
• 6. Intermediate goods - goods that require further processing before they are ready for final use (ex. lettuce of big mac, wheels of a car, etc.)
• 7. Non-market activities (ex. volunteer, family work, babysitting)

       Expenditure Approach

• GDP = C + Ig + G + Xn
• C = Personal consumption expenditures (67% of the economy spends their money here, the purchase of finished goods and services)
• Ig = gross private domestic investment
•  new factory equipment 
•  factory equipment maintenance 
•  construction or housing
•  unsold inventory of products built in a year
• G = government spending
• Xn = net exports (exports - imports)

• Expenditure Approach - add up all the spending on final goods and services produced in a given year (C + Ig + G + Xn)

• Income Approach - add up all the income that resulted from selling all final goods and services produced in a given year. (WRIP + statistical adjustments)
• W = wages (salary, salary supplement, compensation of employees)
• R = rents (rental income)
• I = interests (interest income)
• P = profits (proprietor's profits)

• Expenditure Approach = Income Approach

Other formulas for finding GDP

• Budget = government purchases of goods and services + government transfer payments - government tax and fee collection.
• + = defect
• - = surplus
• Trade = export - imports
• - = defect
• + = surplus
• National income =
• compensation of employees + rental income + interest income + proprietor’s income + corporate profits
• GDP - indirect business taxes - depreciation (consumption of fix capital) - net foreign factor payment
• Disposable Personal Income = national income - personal household taxes + government transfer payments
• Net Domestic Product (NDP) = GDP - Depreciation
• Net National Product (NNP)= GNP- Depreciation
• GNP = GDP + net foreign factor payment 
• gross private domestic investment = net private domestic investment + depreciation
• gross = total, net = small piece

Nominal GDP and Real GDP

• Nominal GDP - the value of output produced in current prices
• can increase from year to year if either output or price increase (P x Q)

• Real GDP - value of output produced in constant base year prices that is adjusted for inflation
• can increase from year to year only if output increases (P x Q)
• in the base year the current price is equal to constant prices (Nominal = Real)
• in years after the base year nominal GDP will exceed real GDP
• in years before the base year real GDP will exceed nominal GDP
• if it doesn't give you base year, you should use the earliest year as the base year
• GDP Deflator - a price index used to adjust from nominal to real GDP 
• (Nominal GDP / Real GDP) * 100
• in the base year the GDP will equal 100
• for years after the base year the GDP deflator will be greater than 100
• for years before base year the GDP deflator will be less than 100
• Inflation - general rise in the price level
• Inflation rate - ((new price index - old price index) / (old price index) )* 100
• Consumer Price Index (CPI) - measures the cost of the market basket of goods of a typical urban American family
• market basket of goods is two or more goods
• (cost of a market basket of goods in a given year / cost of a market basket of goods in the base year) * 100