what’s in gdp?€¦ · what is gross domestic product (gdp)? • currency value of all final...
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Proprietary and Confidential. Not for disclosure outside Federal Reserve.
What’s in GDP? Lesson by Chris Cannon, AP macroeconomics teacher, Sandy Creek High School, Tyrone, Ga.
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What is gross domestic product (GDP)?
• Currency value of all final goods and services produced within a country in a given period
• Total income of a nation • Measure of nation’s economic well-being • Measure of a nation’s economic growth from one period
to the next • Most commonly calculated via expenditures
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Consumption (C)
$ amount of goods and services purchased by household—only counts goods produced in the current year
Examples: Food purchases, vacations, haircuts, clothing, movies, etc
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Investment (I)
• $ amount spent by business on productive resources • Purchases of new homes by consumers! • New machines, new factories, research • Increase in inventories also counts
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Government Spending (G)
$ amount spent on federal, state, and local government-provided services
Example: Roads, education, military, parks, public libraries, etc.
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Net Exports (X-M)
• Exports = Goods we ship to other countries
• Imports = Goods we bring in from other countries
• Exports – Imports = Net Exports
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GDP = C + I + G + (X-M)
If any one letter increases, ceteris paribus, GDP increases
C + I + G + (X-M)
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• Intermediate goods
• Used goods
• Underground production (black market)
• Financial transactions
• Household production
• Transfer payments
What’s not included in GDP?
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• Does not measure income distribution
• Does not measure nonmonetary output or transactions (e.g., barter, household activities)
• Does not take into account desirable externalities, such as leisure or environment
• Does not measure social well-being
• Correlates to standard of living but is not a measure of standard of living
What GDP does not tell us
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Let’s practice
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-4%
-2%
0%
2%
4%
6%
8%
10%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
GDP Growth
Year-over-year GDP growth
Average GDP growth 1980–2008
What is a good rate of growth?
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GET 2/29 data!
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Questions?
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