
The measures were
developed in the
1930’s.
Originally the Gross
National Product
(GNP) was used.
 Since the 1990’s the
GDP has been the
official measure.


The GDP is measured
quarterly.
 Gross-total
before adjustments.
 National-Production owned by U.S companies
 Domestic-production in the U.S, even if
foreign owned.
 GDP
defined is the total value of all final
goods and services produced in a given year.
It includes all goods and services citizen or
foreign supplied in the USA.
 GDP measurement is a monetary amount
 Why?
As the GDP of an economy increases,
we have economic growth, and is a tracking
of long term economic growth.
 Limitations: does not measure quality of life,
leisure time, crime, economic variables.
The Income approach:
W+R+I+P+Sa=GDP
W=wages, compensation
R=rents, lease payments
I=interest, savings and bond payments
P=profits, corporate income tax, dividends and
undistributed corporate profits
Sa=statistical adjustments-Indirect business
taxes(sales, excise, property, customs, licenses,
duties), consumption of fixed capital(CFC) is
depreciation, net foreign income.
The expenditure approach:
C+Ig+G+Xn=GDP
C=personal consumption of finished goods and
services
Ig=gross private business investment, construction
of new houses, factory equipment
G=government
Xn=net foreign factor of trade
(exports-imports)
if Xn is negative, a trade deficit exists
Used goods, secondhand sales
 Gifts, transfer payments(social security, welfare,
veterans payments)
 Stock equity and securities purchased.
 Unreported business activities done for cash.
 Illegal, black market activities.
 Financial transactions between banks and
business
 “intermediate goods”
 ‘non-market’ activities-volunteer or family work.
We only want to count things once!!!!!!!!

Leakages are uses of
household income
not used for
consumption in the
GDP.
Leakages are losses
of $$$$
 Leakages
include:
 Taxes-government
 Saving
 Imports-income
created by one
economy to
purchase output
form another.
Injections (money into economy) are
expenditures by either:
Government, Business or foreign sectors on
domestic goods and services.
This includes exports which inject money (when
the dollar is weak on the world market, exports
increase because American goods are cheaper.)

The government can spend the taxes it collects by
making government purchases.
Business spends profits on investment, but can
retain some profits and capital consumption for
later use.