What is it? What is counted?

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Presentation transcript:

What is it? What is counted? GDP What is it? What is counted?

GDP-What is it? It is part of a nation’s national income accounting It is the total market value of all final goods and services produced in a given year. It is a monetary measure, because money gives us relative values of different goods.

GDP-What is it? Avoids multiple counting It only counts the Final goods, not the intermediate goods Each step of the manufacturing process adds value to the original good, and that is all included in the final price of the good.

GDP-What is it? Stage of Prod. Sale value Value added Sheep ranch 120 Sheep ranch 120 Wool Processor 180 60 Suit Manuf 220 40 Clothing Wholesale 270 50 Clothing retail 350 80 Total 1140

Formula C+I+G+Xn = GDP C = Consumer Spending I = Investment Spending G = Government Spending Xn = Net Exports (X-I)

GDP-What is it? GDP also excludes non-production transactions Public Transfer Payments Private Transfer Payments Stock Market Transactions Excludes Second hand sales

National Accounting Helps economists Assess level of health of econ by comparing levels of production at regular intervals Track long-run growth Formulate policies that will safeguard econ

National Accounting GDP – depreciation = Net Domestic Product (NDP) NDP – Net foreign factor income earned-Indirect business taxes + transfer payments = Personal Income (PI)

National Accounting PI- personal taxes = Disposable Income (DI) DI = Consumption (C) + Savings (S)