6 Economic Well Being Gross Domestic Product (GDP) The market value of all final goods and services produced within a country in a given period of timeFinal goods (intermediate goods not included)Produced within borders, by citizens or foreignersTime period: typically one year
7 GDP Gross Domestic Product = C + I + G + NX C Consumption I InvestmentG Government SpendingNX Net ExportsNet Exports = Exports - Imports
8 GDP Per capita GDP Nominal GDP Real GDP Gross Domestic Product per person in a countryNominal GDPUses prices in the year of the measurementReal GDPUses prices for a “base” year to enable year to year comparisons
9 Total in Trillions of Dollars GDP Values (US, 2001)Total in Trillions of DollarsPercent of TotalConsumption (C)$7.069%Investment (I)$1.616%Government Purchases (G)$1.918%Net Exports (NX)-$0.3-3%Total$10.1100%
13 GDP Measured Real GDP’s (Base year = 2005) 2005 2006 500 * $ * $0.50 = $6502006550 * $ * $0.50 = $715Percent change = 10% growth
14 GDP Measured GDP Deflator (measure of inflation) for base year (Inflation: the percent increase in price level)CalculationNominal GDP / Real GDP * 1002005 (2005 base)GDP Deflator = ($650 / $650) * 100 = 1002006 (2005 base)GDP Deflator = ($935 / $715) * 100 = 131
15 GDP Measured Using the deflator Calulation 2006 Nominal GDP / GDP Deflator * 100 = Real GDP2006($935 /131) * 100= $715
16 GDP Recession: Two quarters of declining real GDP Depression: A severe or long recession
18 GDPRecession: Negative % change in real GDP for two consecutive quarters% Change GDP =(Current Period GDP – Previous Period GDP) *100Previous Previous GDP
19 GDP rationaleReal GDP per capita is a measure of income and buying power in an economy. It measures our ability to produce the items we need and desire.Recessions as measured by GDP often arrive with stock market drops beforehand and higher unemployment afterwards.
21 Critiques of GDPConsumer Confidence Index (Conference Board): Is it predictive of actual conditions?1. Current business conditions.2. Business conditions for the next six months.3. Current employment conditions.4. Employment conditions for the next six months.5. Total family income for the next six months.Frogs in water
25 Critiques of GDPWhat we spend money on is not always positive (car accident).GDP does not include how much time we spend on laborSome of production has environmental impacts, for which the costs are not always measured
26 SummaryGDP is comparatively easy to measure and consistently used to determine a country’s overall economic health as it has links to many measures of well being. However, GDP may not capture all aspects of well being that are important to a nation’s citizens.