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Macroeconomic IndicatorsGDP and what it really means!
GDP of various countries around the world! What do you notice?
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Gross Domestic ProductThe market value ($) of all final goods and
services produced within a country in a given time period.
http://www.huffingtonpost.com/2014/10/08/china-gdp-tops-us_n_5951374.html
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Final vs. IntermediateFinal good or service (included)A good or service that is produced for its final
user and not as a component of another good or service.
Intermediate good/service (not included)
A good or service that is produced by one firm, bought by another firm, and used as a component of a final good or service.
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What’s in GDP? Included
Final goods and services only!
Not Included Secondhand sales
Ex. Used clothes, used cars
Intermediate goods Ex. Lead used in pencil
Chores around home Ex. Raking leaves
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Do any of these count towards GDP?
6s6c
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Calculating GDP Expenditure Method
Expenditure Method: When we add up all of the components of the Product Market we can calculate GDP.
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GDP per Capita (person) Most meaningful measure Divide Real GDP by population
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GDP per capita: China v. US
What is GDP/capita for each country? Why might people in China still not be so bad off despite lower GDP/capita?
http://www.huffingtonpost.com/2014/10/08/china-gdp-tops-us_n_5951374.html
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Formulas
1. GDP: 1. Total Product A + Total Product B
(Quantity A x Price A) + (Quantity B x Price B)
2. GDP per capita:1. Total GDP/Population
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Let’s try calculating GDP…Country A 10 @ $20
each15 @ $100 each
50 @ $200
20 people
# of pencils made/ price
# of I-pods made/ price
# of Amer. Girl dolls made/ price
Total Popula-tion
Total $ $ $ $ /per capita
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How well does GDP measure the welfare of a society (standard of living)?
What items are not included? Non-market transactions
Housework, Self-repairs, Bartering Quality of products Composition of Products
Ex. If country only produces tanks, GDP doesn’t care Underground economy
Informal Economy Tips, babysitting, golf caddying
Black market economy
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Practice time!
1. Gibsonvania only produces neckties. They produce 100,000 ties and sell each one for $75. Calculate GDP.
2. There are only 1,576 people living in Gibsonvania. Using your answer from #1, calculate GDP per capita.
3. Company A is offering $184 for $75. Company B is offering $302 for $150. Which company should I invest in? Show me why.
4. Which of the following count towards GDP?1. A Pre-Owned Car2. A Never Used Skateboard
bought at a yard sale3. A New Keychain4. A Gift Certificate given as a
holiday gift