Gross Domestic Product GDP What is GDP The

Gross Domestic Product (GDP)

What is GDP? The dollar value of all final goods and services produced within a country's borders in a given year.

How to Measure GDP Economists often measure GDP by totaling the money spent on four major categories of goods and services: 1. C-Consumer goods and services 2. I-Business goods and services (a. k. a Investments) 3. G-Government goods and services 4. Net exports (X) or imports of goods and services (M)

GDP Measuring Formula In order to calculate GDP, you will use the following formula: GDP=C+I+G+(X-M) Gross Domestic Product=Consumption + Investment + Government + (Exports – Imports)

Important Side Notes a) b) Intermediate goods (used in the production) are not counted, only FINAL (completed) goods Limits of GDP a) b) c) d) GDP does not measure goods and services that people make or do themselves Black market activity is not included Externalities are not measured but affect society GDP does not measure quality of life

Example of GDP through the house market Suppose that your neighbor sold his house this year. When the house was built, say in 1982, it was counted in that year’s GDP. Thus, it would be inaccurate to count it again this year just because it changed hands. However, the fee paid to the real estate agent who handled the resale of the house would come from services performed this year, so that fee would be included in GDP.

Real GDP vs. Nominal GDP Real GDP-expressed in constant or unchanging prices Nominal GDP-measured in current prices. In other words, it is not adjusted for inflation.