GDP

GDP

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Gross Domestic Product(GDP)- the market value of all final goods and services produced within a nation in a given year.

The US has changed from the leading importing nation from leading exporting in the last decade.

Not Included in GDP

1. Intermediate Goods- something that needs further processing, not included because they are not ready for sale

Ex. Parts of a car (wheels, battery, and glass)

2. Used or Secondhand Goods-  items already sold and used before, not included because they have already been counted

Ex. Thrift Store Items

3. Purely Financial Transactions (stocks and bonds)- transactions that do not result in a instant transfer of money, not included because money does not come immediately

4. Illegal Activities (drugs)- things that are not legal, not counted because they are not traced

5. Unreported Business Activity- things that are not reported to the government, not included because there are no reports

Ex. Tips

6. Non Market Activities/Transactions- simple transactions that are not recorded, not included because not taxed

Ex. Volunteering, babysitting, and personal labor for house.

7. Transfer Payments- money goes away if not used, not recorded because it can lose value

Ex. Scholarships, welfare payments, and social security.

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What is Included In GDP

1. 65% C- Personal Consumption Expenditures

2. 17% IG-Gross Private Domestic Investment (Factory Equipment Maintenance, New Factory Equipment, Construction of Housing, and unsold inventory of products built in a year)

Ex.House that was built but not yet sold

3. 20% G-Government Spending

4. -2% Xn- Net Exports (Exports-Imports) Negative due to importing more than exporting

GDP Formula= C+IG+G+Xn

Gross National Product(GNP)- Total market value of all final goods and services by citizens of that country on its land or foreign land.

Ex. Nikey GDP Nikey company but shoes are GNP

2 Ways to calculate GDP

1- Expenditure Approach (to spend) - add up  all of the spending on final goods and services produced in a given year,most accurate way to calculate GDP

Formulas

GDP=C+IG+G+Xn

Xn=Net Exports - Imports

2- Income Approach- Adds up all the income that resulted from selling all final goods and services produced in a given year

GDP=Wages+Rents+Interest+Profits+Indirect Business Taxes+Depreciation+Net Foreign Factor Payment

*Remember Willy Rest In Peace

Willy=Wages

Rest= Rents

In=Interest

Peace=Profits

Statistical Adjustments-  Indirect Business Taxes, Depreciation, and Net Foreign Factor Payment