VIEWS: 5 PAGES: 2 POSTED ON: 1/12/2012
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!!!!
"Gross Domestic Product"