Gross Domestic
Product
By: Mrs. Erin Cervi
Gross Domestic Product
• G= Gross- TOTAL
• D= Domestic- Made in a country
• P= Product- Production of a final good/service during a specific period of
time.
• (GDP) measures our nations (and others around the world) total
economic performance
– It is an economic indicator!
• 1991 U.S. gov’t switched from GNP to GDP
– GNP: included production of all U.S. resident’s no matter where they were
located
– WE WANTED TO KNOW WHAT WAS GOING ON IN OUR COUNTRY!
• Bureau of Economic Analysis (BEA): Calculate the GDP in the U.S.
Counted Toward GDP
•only final goods and
services (C, I,G, (X-M))
•New (produced that year)
•Capital resources
count if they are NEW
•Domestically produced
•Foreign companies
w/in U.S. borders
•Commissions (broker
fees, real estate agent
fees)
•Inventories (produced,
just not sold)
NOT Counted Toward GDP
•Intermediate goods (NO DOUBLE
COUNTING)
•Old goods/resale goods (already
counted before)
•U.S. companies abroad
•Financial assets (stocks, bonds,
CDs)
•Non-market activity
•unpaid labor/do-it-yourself
projects, finding own home,
buying own stocks, volunteer
work
•under the table transactions b/c
no record of transaction
(babysitting)
•Public transfer payments (SS, Medicaid,
unemployment)
•Private transfer payments (gift of money)
Gross Domestic Product (GDP)
• GDP is measured by totaling money spent on four
categories.
–GDP= C+I+G+ (X-M)
Consumption
• Definition: The spending
by households on goods
and services.
– A new car, food,
clothes, college
tuition, sporting
event, health
insurance.
– Makes up 2/3rds of At the beginning of the 1980’s, just over 60%
of the U.S. Gross Domestic Product was
GDP
consumer spending. Today, consumer spending
is close to 70% of GDP.
http://www.irle.berkeley.edu/events/spring08/feller/
Investment
•
•
•
Investment sometimes refers to the purchase of financial
products, such stocks, bonds, or even gold, with the hope of
making money in the future.
Regarding GDP, investment is defined as: purchases that
contribute to the overall performance of an economy.
There are THREE things that count as investments
1. Spending by businesses on capital resources/machinery,
factories, equipment, tools, computers, technology, new
buildings.
2. Individuals buying a new house
3. INVENTORIES: A company's merchandise, raw materials, and
finished and unfinished products which have not yet been sold.
Government Spending
• Definition: Spending by
all levels of government
on goods and services
– Direct payment for
goods/services
– Military, roads,
healthcare
Net Exports
• Definition: Spending by people
outside the United States on US
produced goods (exports, or X)
• Minus spending by people in the
United States on foreign goods
and service (imports, or M)
• (X-M) = Net Exports
How is GDP an economic indicator?
• When the GDP is rising, a national economy is
growing.
– If the U.S’s GDP increases 3-5% each year =optimal b/c
we are growing at a healthy, sustainable rate (a rate
that can be kept up).
• When GDP increases 2% and below it is
considered to have a sluggish/declining economy.
• Even better indicator: real GDP per capita=real
GDP/population