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What'S in GDP?: An Activity For "The Abcs of GDP" (Extra Credit Spring 2009)

GDP measures the total value of goods and services produced within a country in a given period. It includes consumption, investment, government spending, and net exports. The components are personal consumption expenditures, fixed investment, inventories, government expenditures, and exports minus imports. On average since 2003, consumption makes up 70% of GDP, government 19%, investment 16%, and net exports -5%.

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28 views13 pages

What'S in GDP?: An Activity For "The Abcs of GDP" (Extra Credit Spring 2009)

GDP measures the total value of goods and services produced within a country in a given period. It includes consumption, investment, government spending, and net exports. The components are personal consumption expenditures, fixed investment, inventories, government expenditures, and exports minus imports. On average since 2003, consumption makes up 70% of GDP, government 19%, investment 16%, and net exports -5%.

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nidaiqbal787
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WHAT’S IN GDP?

An activity for “The ABCs of GDP” (Extra Credit Spring


2009)
What is gross domestic product
(GDP)?
 Currency value (such as U.S. dollar) of all final
goods and services produced within a country in a
given period
 Total income of a nation
 Measure of nation’s economic well-being
 Measure of a nation’s economic growth from one
period to the next
What’s included in GDP?
 Consumption by households
 Goods: groceries, clothes, iPods
 Services: haircuts, oil changes
What’s included in GDP?
 Investment by businesses and households
 Fixed assets for production
 New homes
 Inventories
What’s included in GDP?
 Government expenditures by local, state, and
federal government
 Roads and schools
What’s included in GDP?
 Net exports
 Value of a country’s exports to other nations, less

its imports from other nations


What’s included in GDP?
 GDP = Consumption + Investment + Government
spending + Net exports
What’s not included in GDP?
 Intermediate goods
 Used goods
 Underground production (black market)
 Financial transactions
 Household production
 Transfer payments
What are the components of GDP?
GDP

Personal
Consumption
Expenditures Investment Government Net Exports
(C) (I) (G) (NX)

Fixed Investment Inventories Exports Imports

Nonresidential Residential

GDP = C + I + G + NX
How much of GDP is each component?
Average Percent of GDP since 2003 Component % of GDP
110%

100%
Government 19%
90%

80%
Investment 16%
70%

60%

50%

40%
Consumption (PCE) 70 %
30%

20%

10%

0%
Net Exports -5%
-10%

GDP 100%
Source: Bureau of Economic Analysis
What is a good rate of growth?
Real and nominal GDP
 When GDP is computed in the current year’s
prices, rising prices (inflation) can make it difficult
to determine if a change in GDP from one year to
the next is due to the country’s production of more
goods and services or to increases in the price
level.
 Nominal GDP: GDP that is not adjusted for inflation.
The value of goods and services in current prices.
 Real GDP: The dollar price of GDP in a base year’s
price, used to compare changes in GDP from one year
to the next. An increase in real GDP is an increase in
economic growth.
What GDP does not tell us
 Does not measure income distribution
 Does not measure non-monetary output or
transactions (e.g., barter, household activities)
 Does not take into account desirable externalities,
such as leisure or environment
 Does not measure social well-being
 Correlates to standard of living but is not a measure
of standard of living

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