- Slides: 6
GDP Facts GDP is called the single best measure of economic well-being. GDP measures both the economy’s total income and expenditures. Because most people would prefer to receive higher incomes and enjoy higher levels of spending, GDP seems a natural measure of economic well-being. But the validity of GDP as a measure of societal well-being can be disputed on several points.
GDP IS NOT A PERFECT MEASURE Does not include the value of leisure time. Does not include value of labor done at home or on a volunteer basis. Excludes any measure of the quality of the environment. Does not account for the unequal distribution of income. May overstate incomes because of inflation
Nominal GDP versus Real GDP We use GDP to evaluate whether or not our economy is growing. If we produce more goods and services this year than last year we can conclude that we are growing and that incomes are increasing. Because GDP is measured by adding up our spending on output (PRICE X quantity) this is not always clear since prices tend to rise from year to year.
Nominal GDP versus Real GDP Nominal GDP is the dollar amount we spent this year on goods and services. It is found by multiplying output bought at current price level. Ø If we have inflation or produce more nominal GDP goes up.
Real GDP is corrected for the effects of inflation. It is found by multiplying output bought at a constant price level. Ø If Real GDP has increased then output has increased.
Real GDP per Capita An even better measure of economic well-being is GDP per capita (total GDP / total population) China’s total GDP is $9. 24 trillion United Kingdom’s total GDP is $2. 94 trillion Whose citizens are better off? GDP per capita in China = $11, 850 ppp GDP per capita in UK = $46, 244 ppp