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GDP
Gross Domestic Product
©2012, TESCCC Economics, Unit: 06 Lesson: 01
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Learning Targets
• Define GDP• Explain How Gross Domestic Product is
calculated• Explain the difference between nominal
GDP and real GDP• Explain difference
between GNP & GDP
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Gross Domestic ProductDollar value of all final goods and
services produced within a nation’s borders in one year.
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Economic growth is one of the major goals of U.S.
• Economic growth - increasing production of goods and services
• To do this, we must use our productive resources wisely and efficiently.
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How to useFactors of Production Wisely
• Land or natural resources – don’t waste, but conserve
• Labor or human resources – make sure workforce has adequate training & education
• Capital goods/resources – save more and invest more in capital goods
• Entrepreneurship – new business vital, encourage entrepreneurs to start new business
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GDP measureseconomic growth
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-GDP combines spending of the 3 sectors within the national economy including households (consumer spending), business firms (investment), and the government (government spending)-GDP also calculates international trade (exports and imports) as a contributing factor
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How is GDP determined?
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C + I + G + (X-M) = GDP
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C + I + G + (X-M) = GDP
C = consumer spending
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C + I + G + (X-M) = GDP
I = investment (business) spending on capital goods
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C + I + G + (X-M) = GDP
G = government spending
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C + I + G + (X-M) = GDP
(X-M) = net exportX= exportsM= imports
(exports – imports)©2012, TESCCC
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C + I + G + (X-M) = GDP
• C = consumer spending• I = investment (business)
spending• G = government spending• (X-M) = net export (exports -
imports)©2012, TESCCC
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GDP
-10%
0%
10%
20%
30%
40%
50%
60%
70%
ConsumersBusiness-IGovernmentForeign
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Foreign = Net Export
If below zero, it means there are
more imports than exports
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Not included in GDP:
Intermediate goods: Goods used in the production of another
good (We wait and count the final product).
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Cost of denim fabric not counted
Instead, we count the value of the finished product, jeans.
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New Goodyear Tires
New Stereo
NEW TRUCK or final product
counted in GDP
not counted not counted
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Used products -These products were counted the year they were made so we will not count them again this year or the year it was purchased. For example, if you buy a used car, just 1 year old with only 10,000 miles, it is not counted in this year.
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Non market activities
• These are activities that a person does themselves such as painting your house instead of hiring a painter.
You do not have a buyer
and a seller so you do not
have a market.
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Illegal market
• This includes all of the underground economy or illegal transactions.
Such as:• gambling• drugs• stolen property
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Financial Transactions
• This includes things like stocks and bonds. Nothing is produced; just paper showing a claim of some sort, not a good or service.
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Gifts or Transfer
• You receive money for your birthday, or pay taxes or pay child support. Nothing is produced; simply transferring money from one group to another
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Different Types of GDP
• Nominal GDP: no adjustment for inflation (current dollar value used)
• Real GDP: adjusted for inflation (converted to base year prices)
• Real per Capita GDP: Real GDP Population
– shows overall standard of living
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GDP & GNP
• GNP – Gross National Product: all goods & services produced by a nation’s citizens inside and outside of borders.
• GDP – Gross Domestic Product: all final goods & services produced within a nation’s border during a year
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Limitations of GDP
1. Non-market activities2. The underground economy3. Negative externalities4. Quality of life• http://www.learner.org/vod/vod_window.html?pid=
2467
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