GDP/GNP
Measuring the Economy
economic indicator



A statistic about the economy.
Allows analysis of economic performance and predictions
of future performance.
Include various indices, earnings reports, and economic
summaries.
Conference Board
Leading Economic Indicators
Average weekly hours, manufacturing
Average weekly initial claims for unemployment insurance
Manufacturers' new orders, consumer goods and materials
Manufacturers' new orders, nondefense capital goods
Building permits, new private housing units
Stock prices, 500 common stocks
Money supply, M2
Interest rate spread, 10-year Treasury bonds less federal funds
Index of consumer expectations
Institute for Supply
Management Index
Measures manufacturing activity and
is determined monthly based on
five indicators: new orders,
production, supplier deliveries,
inventories, and employment.
Major US Stock Indices
•moneycentral.msn.com
30 – 2 Year Yield Spreads
30 Year T Bond Yield
20
15
10
5
30 Y Treasury
30Y-2Y Spread
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1979
-5
1977
0
Two Measurements
GDP

Gross Domestic Product



Dollar value of all G/S
produced within a
countries borders in a given
year.
Foreign producers in US?
US companies oversees?
GNP

Gross National Product



Dollar value of all G/S
produced by citizens of a
country during a given year.
Foreign producers in the
US?
US companies oversees?
Two Calculations
Sales

Add together the receipts
for all recorded
transactions




Black market
Barter
Inflation
Variety
Salaries

Add together the salaries
of all income earned




Under the table
Efficiency
Double counting
Distribution
What GDP does NOT tell us!

Non-market Activities

Some people do activities for themselves that others pay for


Quality of Life

Production might be predicated on over-worked employees


Medical internists
Distribution of Wealth

There may be a few uber-rich people and many incredibly poor


Oil changes/lawn care
Loss of US middle class
Inflation

Values may rise without increasing production

2 Turtle Doves/automobiles
More on the limitations of GDP

Underground Activity

Illegal activities do not get recorded by governments


Per Capita Income

Some countries have huge populations while others do not


US average is just under $50,000
Variety of Goods

Economies can be narrowly focused


Drug sale/prostitution
Oil production
Negative Externality

Production can result in pollution

Cuyahoga River fire
Publicly Held Federal Debt / GDP
Publicly Held Federal Debt / GDP
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
47 950 953 956 959 962 965 968 971 974 977 980 983 986 989 992 995 998 001
9
1 1
1 1 1
1 1 1
1 1 1
1 1 1
1 1 1
1 2
2000
1998
1996
1994
1992
2001
2001
2000
2000
1999
1999
1998
1998
1997
1997
1996
1996
1995
1995
1994
1994
1993
1993
1992
1992
1991
1991
1990
1990
1989
1989
1988
-4
1988
-2
1990
1988
400
300
200
100
0
-100
-200
-300
-400
billions $
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
Fed Funds Rate
12
10
8
6
4
2
0
Annualized Growth Rate
Real Gross Domestic Product
1996 Dollars
10
8
6
4
2
0
Reflection: Is GDP/GNP a good
measure of an economy? How does
knowing the statistic’s shortcomings
help in evaluating an economy? Give an
example of a country who’s GDP/GNP
does not accurately measure the
economy. State the limitation from the
information in your notes.