GDP Circular Flow Macro GDP Gross Domestic Product
- Slides: 13
GDP & Circular Flow Macro
GDP - Gross Domestic Product Dollar amount of all final goods and services produced within a country's borders in a year Measure of economic performance When the GDP grows, it indicates a healthy economy If it does not grow, new policies are implemented to stimulate the economy
What does G, D, & P mean? Gross= total Domestic= produced anywhere in the 50 states, by anyone Product= goods and services
GDP Government Expenditures Government Taxes GDP
What is excluded from GDP? intermediate products (used in making other products) Purely $ transactions Secondhand Sales Underground Production Economy – illegal stuff in U. S. -owned plants in other countries
What IS counted in GDP? Final goods and services Goods and Services produced here including foreign companies
Calculating GDP Multiply the quantity of each good by its price and then add the results Done by sampling, somewhat inaccurate Includes production of goods/services within the U. S. by other countries
Output-Expenditure Model GDP=C+I+G+(X-M) C = household spending on consumption goods and services I = business investment spending G = government spending on goods and services (X-M) = net exports X = exports M = imports
Current vs. Real GDP Current GDP measured in current prices Current year’s prices to calculate the value of the current year’s output Problem – increase in prices can distort b/c there may not be an increase it output Real Constant or unchanging prices Real GDP rises = economy is producing more goods and services regardless of changes in the prices.
Population Growth and Economic Growth Population size directly affects the growth on one of the factors of production, labor Economic raises growth: the standard of living eases the burden of government helps solve domestic problems can boost the economies of foreign trade partners
GDP Per Capita The dollar amount of real GDP produced on a person basis. This is a better measure because it adjusts for both inflation and population changes.
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