Macroeconomics 2 GDP GDP Gross Domestic Product Value

Macroeconomics #2 GDP

GDP Gross Domestic Product • Value of all final goods & services produced in the U. S. • Measure of economic performance

GDP Comparisons • GDP of Egypt = 188. 4 billion U. S. dollars (2009) • GDP of France = 2. 65 trillion U. S. dollars (2009) – Which country is producing more? – Which country is better off economically? – What do you think the U. S. GDP is?

No double-counting! GDP only counts products once: 1. Final output: counts final product • Lumber used to make a table doesn’t count, table counts as part of GDP 2. Current year: only products made in this year • Used items don’t count 3. Within National Borders: all products made in U. S. • Japanese car companies in U. S. count

What counts in the GDP? A. 2011 Honda made in Kentucky C. TV made by an American company in China B. 2001 Honda made in Kentucky D. Fabric used to make a shirt

Calculating GDP 1. Consumption: spending by households A. Durable goods: last over 3 yrs B. Nondurable goods: last less than 3 yrs

2. Investment • New capital goods – New building, machinery

3. Govt Purchases • Govt builds library, bridge, etc.

4. Net Exports • # of exports (goods traded to other countries) - # of imports (goods other countries sell to us) – This has been negative in recent years (we import more than we export!)

GDP Formula: C + I + G + (X-M) = GDP

Macro #3: 1. Which portion of the US GDP is the largest? What percent of the GDP is it? 2. Which portion of the US GDP is the smallest? What percent of the GDP is it? Why is it possible for this number to be negative?

9. At what point was the US GDP doing the worst? 10. At what point was the US GDP doing the best? 11. What does this graph tell us about the economy in 2009? 12. What does this graph tell us about the economy of 201011?