Warm-Up
Class Reflections: We have just completed our
first midterm …and each of you has a good
feel of this class.
What has been the most challenging
aspect of this class? What do you
plan on doing up until end the
semester to achieve or maintain a
grade you will be satisfied with?
Warm-Up
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GDP & GNP (Unit 5)
Gross Domestic Product and
Gross National Product
What’s the Difference???
• GNP
• GDP
(Gross National Product)
-Total $ value of all final
goods and services
produced annually by
American residents,
whether these resources
are located in the U.S. or
abroad
(Gross Domestic Product)
-Total $ value of all final
goods and services
produced annually within
the boundaries of the
U.S., whether by
Americans or Foreigners
GNP or GDP?
Determine whether each of the following falls
under GNP or GDP. Explain your rationale!!!
1.
2.
3.
4.
5.
6.
Mexico builds a shoe company in Texas.
Miss Stack moves to Brazil and becomes an
Economics teacher abroad.
Due to high labor costs in the U.S., Nike moves
its entire company to China.
Microsoft decides to build a computer factory on
the corner of Inglewood and El Segundo.
Come up with an example of GDP yourself and
write it in as #5
Come up with an example of GNP yourself and
write it in as #6
Measuring GDP/GNP
• Two Ways To Measure GDP/GNP:
1.) Expenditure Approach
2.) Flow of Income Approach (Circular
Flow Model)
1. Expenditure (Spending) Approach
GDP/GNP=C+I+G+Xn
C+I+G+Xn
• Consumption (C): Household spending. Makes up twothirds of GDP spending. [the biggest spending sector of
the economy]
• Investment (I): Spending by Businesses on machinery,
factories, equipment, tools, and construction of new
buildings.
• Government (G): Spending by all levels of government
on goods and services.
• Net Exports (X-M) = Exports minus imports: Spending
by people abroad on U.S. goods and services (exports, or
X) minus spending by people in the U.S. on foreign goods
and services (imports, or M)
Practice Problem!!! Using the
Expenditure Formula, solve for
GDP/GNP!!!
Calculate GDP/GNP when:
C=500 million
I=150 million
G=300 million
X=200 million
M=300 million
The Expenditure Approach
• Step 1: For each of the scenario, determine which
category of spending it falls under.
• Step 2: Then, write whether or not GDP/GNP
increased or decreased using arrows.
• Step 3: Create a tree map -- pull out a blank piece
of paper and fold into 4 equal columns and label
your top branch ‘The Expenditure Approach’
and the others appropriately.
• Step 4: Cut and glue into the correct column!!!
• Step 5: If time, draw a symbol next to each.
2. Flow of Income Approach
GDP/GNP=W+I+R+P
1. Households provide businesses with resources
(land, labor, capital, entrepreneurship)
2. In return for these resources, businesses pay $$$
in the form of Wages, Interest, Rent and Profit.
You add up all the money income derived from the
production of this year’s outputs.
Shortcomings of GDP
• There are FOUR shortcomings of GDP that make it an
imperfect counting system of economic well-being –
we still use it but we need to be aware of it’s
imperfections
•
•
•
•
1. Production Excluded
2. Human Costs & Benefits
3. Treatment of Leisure Time
4. Unproductive Production that Goes into GDP