Economic Performance How do economists calculate GDP What

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Economic Performance • How do economists calculate GDP? • What are the limitations of

Economic Performance • How do economists calculate GDP? • What are the limitations of GDP? • What other stats do economists use to measure the economy?

Gross Domestic Product • Nation Income Accounting – To track production, income, and consumption

Gross Domestic Product • Nation Income Accounting – To track production, income, and consumption in a nation’s economy – Used to measure Nation income and product amounts

Measuring Economic Production • Gross Domestic Product (GDP) – The total dollar value of

Measuring Economic Production • Gross Domestic Product (GDP) – The total dollar value of all final goods and services produced within a country during one calendar year. • 3 components of GDP – Final Output • Value of only the final good and services – Woodcutter – Current Year • Only goods that were produced within that year – Output Produced within National Borders

Output-Expenditure Model • The actual formula used to compute GDP • Personal Consumption Expenditures

Output-Expenditure Model • The actual formula used to compute GDP • Personal Consumption Expenditures (C) – Consumer purchases • Gross Investment (I) – Total value of all capital goods produced in a given nation during one year as well as change in the dollar value of business inventory • Fixed investmentnon/residential structures and capital goods • Inventory Investment- I/D in stock of raw material

Output-Expenditure Model • Government Purchases (G) – Total dollar value that federal, state, and

Output-Expenditure Model • Government Purchases (G) – Total dollar value that federal, state, and local governments spend on goods and services • Highways, education, and defense • Net Exports (X-M) – Includes exports and imports • C+I+G+(X-M)=GDP

Adjusting GDP for Price Increases • As $ increases so does GDP • Nominal

Adjusting GDP for Price Increases • As $ increases so does GDP • Nominal GDP – Current GDP expressed in the current prices of the period being measured • Real GDP – Adjusted for price changes – Price Index- a set of statistics that allows economists to compare prices over time.

Limitations of GDP • Accuracy and Timeliness of Data – Use of estimates and

Limitations of GDP • Accuracy and Timeliness of Data – Use of estimates and sampling techniques • Non market Activities – chores • Underground Economy • “Goods” – Things that make society better are not reported • “Bads” – Things that make society worse are reported

Other National Income and Product Accounts • Gross National Product (GNP) – Measures the

Other National Income and Product Accounts • Gross National Product (GNP) – Measures the total dollar value of all final output produced with factors of production owned by residents of a country during 1 year

Questions • What are the main components of GDP, and how are they determined?

Questions • What are the main components of GDP, and how are they determined? • What are the limitations of GDP? • How does GDP differ from GNP?

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