Gross Domestic Product
(GDP)

GDP is the market value of all final
goods and services produced
within a nation in a year

GDP is an aggregate measure of
the economy
Cartogram map
showing other countries’
GDP relative to U.S.
States
GDP vs. GNP
Until the 1990’s, Gross National Product (GNP) was
the federal measure of the economy.
GNP=Measure of the value of all goods & services
produced by US owned firms whether domestically
produced or manufactured abroad.
GDP & the Quarter System

GDP is officially measured in
“quarters” of years:
Quarter 1 = Jan/Feb/Mar
Quarter 2 = Apr/May/June
Quarter 3 = July/Aug/Sep
Quarter 4 = Oct/Nov/Dec
Measuring GDP

The Expenditure Approach
(aggregate spending)
C + Ig + G + Xn = GDP (nominal)
Consumption (C)

Consumer spending on
 Durable
goods (cars, appliances…)
 Non-durable
 Services

goods (food, clothing…)
(plumbing, college…)
Consumer spending is the largest
component of U.S. GDP.
Gross Private Investment
(Ig)

Spending in order to increase future
output or productivity
 Business
 New
spending on capital
construction
 Homes
 Commercial
 Change
Real Estate Development
in unsold inventories
Government Spending
(G)

All levels of government spending
on final goods and services and
infrastructure count toward GDP.

Government transfer payments do
not count toward GDP.
Net Exports (Xn)

Exports – Imports

X–M

Exports create a flow of money to
the United States in exchange for
domestic production.

Imports create a flow of money
away from the United States in
exchange for foreign production.
The Income approach
r + w + I + p = GDP (nominal)
Rent + wages + interest + profits or…
The Factors of Production…
Yeah this exists…
2 more things

Nominal vs. Real GDP
 Nominal
 Real

is not adjusted for inflation
is
GDP per capita
 GDP
per person
 Considered
a better measure of
economic wellbeing
What does not count…

Used goods/Second-Hand Goods

Gifts or ‘Transfers’ (private or public)

Stock/Equity/Security purchases
(Places like NYSE or NASDAQ)

Unreported Business Activities
conducted in “cash”
(ex. Unreported tips…)
What does not count…
cont.

Illegal activities
(Black Markets)

Financial Transactions between
banks and Businesses

Intermediate goods (no double
counting)

Non market activities like volunteer
and family work