Presentation on theme: "GROSS DOMESTIC PRODUCT (GDP) & GROSS NATIONAL PRODUCT (GNP)"— Presentation transcript:
1 GROSS DOMESTIC PRODUCT (GDP) & GROSS NATIONAL PRODUCT (GNP) ECONOMIC INDICATORSGROSS DOMESTIC PRODUCT (GDP)&GROSS NATIONAL PRODUCT (GNP)MEASURING ECONOMIC GROWTH
2 GDP – Associated Concepts Intermediate GoodsFinal GoodsNominal GDPReal GDPInflationGDP per capitaGDP adjusted for PPP.(Purchasing Power Parity)
3 UNDERSTANDING GDP What is GDP? GDP – GROSS DOMESTIC PRODUCT The total value of all final goods and servicesproduced in an economy within one year or a specified period of time.The economic growth of a country is measured by the increase or decrease in GDP.
4 GDP – FINAL GOODS What are final goods? Final goods are complete products sold toconsumers. For example: a car you purchase from aHolden is a final good. However, the acceleratorpedal in the car is an intermediate good.The cost of producing intermediate goods are not includedin GDP calculations.Why???
5 DIFFERENCES BETWEEN INTERMEDIATE AND FINAL GOODS Classify each of the following as either anintermediate or final good:Windscreen wiperMobile phoneBulb in a TelevisionComputer chipStaplesPizzaAircraft propeller
6 What is the total GDP of the United States? The 2009/10 estimate for US GDP is 14.4 trillion dollars or billion.At GDP per capita (GDP expressed on per person basis), this was the equivalent to $48,000 for every person living in the USA.Naturally, GDP per capita does not imply, every person has an income of $48,000. Many people earn a lot less and a lot more in the United States.
7 How does US GDP compare to the rest of the world? The US is still the largest economy in the world despite the GFC (global financial crisis)China recently overtook Japan (mid 2010), to become the world’s second largest economy.Country Rank (Order)(CIA World Fact Book)Total GDP (trillions)at the official exchangerateGDP per Capita1. United States$14.4 trillion$48,0002. China$4.7 trillion$6,6003. Japan$4.6 trillion$32,6004. Germany$3 trillion$34,9005. France$2.9 trillion$32,7006. United Kingdom$2.7 trillioin$36,600
8 Based on GDP per capita, what are the richest countries in the world? 1 Liechtenstein $ 118,2 Qatar $ 103,3 Luxembourg $ 81,4 Bermuda $ 69,5. Kuwait $ 57,6 Jersey $ 57,7 Norway $ 55,8 Brunei $53,9. Singapore $52,10 USA $48,
9 GROSS NATIONAL PRODUCT (GNP) Gross National Product is GDP +Net Foreign Income from Abroad.For example, GNP for the US would beGDP + (plus)US company/individual income from overseas– (minus) .Foreign company/individual income from the US
10 Which is greater GDP or GNP? When Americans receive more income from their overseas investments than foreigners receive from their investments in the United States, American GNP will be somewhat larger than GDP in that year. If Americans receive less income from their overseas investments than foreigners receive from their US investments, on the other hand, American GNP will be somewhat smaller than GDP.
11 What is US GNP?The United States, stopped using GNP statistics in its national accounts in 1992, although these figures are still collected by statistical agencies.US GNP and GDP have been similar for a number of years.However, for many countries their GNP is significantly less than their GDP.
12 What was the increase in US GNP from 1947 to 2009?
13 GDP – A VITAL ECONOMIC INDICATOR Why is GDP a very important economic indicator?It helps to measure the size of a country’s economy relative to other countries.All government spending can be expressed as a percentage of GDP for global comparison purposes.GDP can be expressed on a per capita (person basis) – to further assist our understanding of global differences between nations & regions.
14 GDP – A VITAL ECONOMIC INDICATOR Countries can be classified into different income groups based on GDP figures.For example the high income, middle income, and low income countries.GDP figures are used in all reference books, and business/ economic journals.
15 GDP – A MEASURE OF ECONOMIC GROWTH A country’s growth rate is determined by the percentage increase or decrease in GDP.For example if GDP was $10 billion in 2007 and increased to $10.5 billion in 2008, the growth rate for the country would be 5% per annum. However it is necessary to distinguish between Real and Nominal GDP. (future slides)
16 What is a recession? Negative GDP Growth Two quarters of negative economic growth.or 6 months of negative economic growth.What does negative economic growth mean?GDP went backwards (declined from the previousperiod)Expansion: increase in GDP / economic growthContraction: decrease in GDP / economic growth
17 Economic Growth Rates High Income Advanced Economies CountryGDP Growth RatesEconomist Magazine Prediction Full Year 2010August 12th 2010.Singapore12.3%South Korea5.9%Canada3.5%Australia3.1%Japan3.2.% (mainly export led growth, very weak domestic demand)United States3%Germany1.9%France1.4%BritainGreece-4.4% (negative)
18 Economic Growth Rates Developing Countries CountryGDP Growth RatesEconomist Magazine Prediction Full Year 2010August 12th 2010.China9.9%India8%Brazil7.8%Argentina6.8%Vietnam6.4%Indonesia5.6%Chile5.2%Colombia4.6%MexicoSouth Africa2.8%Venezuela-5.5% (negative growth)
19 Nominal GDP vs Real GDP Nominal GDP GDP which is not adjusted for inflation.As a consequence nominal GDP figures are distorted by inflation and are not accurate.Real GDPGDP which is adjusted for inflation.As consequences these GDP figures are more accurate, than nominal figures.
20 NOMINAL & REAL GDP Case Study Example In economy XYZ GDP increased from $10 billion in 2007 to $10.5 billion in Therefore our growth rate was 5% per annum. We can call this figure the nominal increase in GDP or the nominal growth rate. However, what if the inflation rate for this same period was 3%. Therefore 3% of our increase in GDP was not due to real growth, but rather to an increase in prices. Real GDP or the real growth rate is only 2% per annum.
21 Real GDP Basic Exercises (Calculations) Waxland Economy Waxland had a total GDP of $550 billion at the end of At the end of 2008, GDP was calculated to be $660 billion. However, the inflation rate during 2008 was 15%. Calculate the real GDP growth rate for 2008 in dollar and percentage terms.
22 Waxland Economy (Proposed Solution to Question)
23 Real GDP Exercises Swaziland Economy Swaziland had a total GDP of $850 billion at theend of At the end of 2008, GDP wascalculated to be $910 billion. However, theinflation rate during 2008 was 5%. Calculate thereal GDP growth rate for 2008 in percentageterms.
24 Swaziland Economy (Proposed Solution to Question)
25 GDP – PURCASHING POWER PARITY (PPP) Internet Activity:The GDP figures provided in slide 7 related to GDP at the official exchange rate.However, GDP at Purchasing Power Parity is considered more accurate by many commentators.What do they mean by PPP?Go the following website:Click on Economy – GDP (Purchasing Power Parity)