# WHY ECONOMISTS STUDY GDP GDP AND CORRELATES SCATTER

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WHY ECONOMISTS STUDY GDP! GDP AND CORRELATES

SCATTER PLOT OF DEATHRATES and GDP

USE THE LOG OF GDP

DRAW LINE OF BEST FIT

UN-LOG TO SEE IT RAW

WHAT WAS THAT EQUATION? • DEATH RATE = 20. 7 -1. 45 LOG(GDP) • ASIDE: MEANS DEATH RATE FALLS BY 15% FOR EVERY 10% INCREASE IN GDP

Suppose we look at something less distressing: cable subscribers per 1, 000 of the population!

Plotted against GDP

Infant mortality and GDP

Only this time take log of both sides

The red line tells us that: • On average a 10% increase in income means a 5% fall in infant mortality!

Life Expectancy and GDP

Daily Newspapers/1000 population

Telephones per 1, 000

Motor Vehicles

Women over the age of 65 per 100 Men over the age of 65

Does it Matter if We Study GDP or GNP? • What is the difference? • GDP speaks to domestic production • GNP is concerned with income received by domestic citizens • The difference GDP-GNP=income paid to foreigners, or • GDP-income paid to foreigners=GNP

Why is income paid to foreigners? • If foreigners invest capital in Canada, they receive payments for that capital – rental payments. • Similarly, Canadians receive income from their capital located outside the country. • GNP reflects the flow of that capital.

How substantial are the differences between GDP and GNP?

Not that much for most countries. For example: Country (GNP-GDP)/GDP Population Kiribati 25. 9 76, 000 Lesotho 21. 1 1, 898, 000 Brunei 15. 4 276, 000 Eritrea 9. 1 3, 400, 000 Luxembourg 5. 0 398, 000 Kuwait 3. 3 1, 461, 000 Malta 2. 0 364, 700 Switzerland 1. 9 6, 900, 000 United Arab Emirates 1. 9 2, 230, 000 Suriname 1. 9 405, 000 Vanuatu 1. 7 160, 000 Saudi Arabia 1. 4 17, 300, 000 Lebanon 1. 3 3, 855, 000 Qatar 1. 2 580, 000 Marshall Islands 1. 1 50, 000

What characterizes those with the highest “imbalance”? • Size • Special Commodity