Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out

Gross Domestic Product

VIEWS: 5 PAGES: 2

									Gross Domestic Product (GDP)
In case you didn’t realize it, you are through the looking glass now.

I. What is GDP?
     a. GDP is the primary indicator for measuring economic
     growth.
     b. Definition: The total value of all final goods and services
     produced in an economy during a given period, usually a year.
            i. Final products (goods and services) are products that
            are sold to final or end user.
                   - most goods you have purchased fall in this
                   category.
            ii. Intermediate products are products that are inputs for
            the production of final goods and services.

      c. It can be calculated in several ways, all of which yield the
      same result.

II. Calculating
      a. Value Adding Approach
            1. Survey firms and find out the value of their production
            of final goods and services.

      b. Expenditures Approach (The one we will use)
           1. Logically, GDP must equal the flow of funds received by
           firms from their sales in the product market.
           2. Recall the circular flow.
                i. the basic rule of accounting says flows must be
                equal.
           3. So…if we add up the dollar value of all consumer
           spending(consumption), investment
           spending(investment), government spending and the
           value of exports minus imports(net exports), we should
           get GDP.

                              That is Y(GDP)= C + I + G + Nx
            4. The adds up the aggregate, or total, spending in the
            economy.
      c. Income Method
            1. Logically, flows on the circular flow have to be equal.
2. So…if we looked at the sum total of household incomes,
this will also give us GDP
3. Why?

   BECAUSE ONE PERSON’S SPENDING IS ANOTHER
             PERSON’S INCOME!!!!

								
To top