1
Lecture
Gross Domestin Product
market value of the final goods
over a certain period
measuring
GDP
of time
services produced in an economy
value added production approach
amount of goods produced in an economy
expenditure approach
total purchases in the economy
income measure of GDP
all the income earned in the economy payments to production factors
production
expenditure
income
production approach
services are included
only final goods
sum of valueadded for all firms
value added revenue costs of intermediate goods
OR
value added market value
costs of input purchased from other firms
expenditure approach
I
G t NX
consumption durable goods non durable goods services
investment business fixed investment residential investment investor
Y
C
investment
goods does not
gout purchases govt expenditures on new services
include transfer payments unemployment benefits gout pensions welfare payments
income approach
add up income earned by factors of production inputs
GDP factor payments
non factor payments
wages
salaries
net indirect taxes
interest
depreciation
business profits
capital gains not included
included in
not included in GDP
GDP
govt spending
gout transfer payments
factory production
healthcare expenditures
resale activity
measuring GDP across time
GDPt
nominal GDP
real GDP
environmental conditions
measure of a nation's health
Ei PE x Q
uses current year quantities same as nominal GDP
uses base
prices different from nominal GDP
year
Ye P to Qi e t
N total renren.ii.se
R.to
Pro.to are
of goods
t PN to Quit
the economy
prices in the base year to
nominal GDP
services in
Pit Q.tt PreQue t
N total number of goods
PNT ONE
services in
Pit PN t are prices in year t
the economy
Laspeyres index
calculates changes in real GDP using the initial prices
Paasche index
calculates changes in real GDPusing the final
Fischer index
yearprices
also known as chain weighting
preferred approach to
calculating real GDP
geometric average of the Laspeyres
I Paasche indeces
can be applied on a year by year basis if realGDP is computedeachyear
preferred because new goods are invented while others become obsolete and
economy shifts towards services
nominal GDP
GDP Deflator
price level
nominal GDP
it is used as
1 Δ nominal GDP
away from goods
real GDP
real GDP
of price inflation
1 Δ price level
1 Areal GDP
a measure
exchange rate
price at which currencies are traded
Comparing GDP across countries
adjust GDP by exchange rate to express in common currency
value of nominal GDP must be multiplied
the ratio of prices in
the
by
countries
shortcomings of GDP
not captured
GDP
home production
by
homelessness
crime rates and
cultural progression
health
life expectancy
economic inequality environmental degredato