GDP – a measure of National Income In the UK, we use GDP to measure National Income (some countries use another measure) GDP = Gross Domestic Product (includes production of foreign countries on UK soil; doesn’t include UK companies abroad) http://www.bbc.co.uk/news/business-13200758

National Income The value of the output of goods and services produced in an economy over a period of time Increases in National Income mean that the economy has grown – economic growth! It is assumed that a richer nation can have a more comfortable life, more leisure time, more choices, etc…

Put the top 10 in order of Size Country Size ($billion, 2013) United States 16,800 China 9,240 Japan 4,902 Germany 3,635 France 2,735 United Kingdom 2,522 Brazil 2,246 Russian Federation 2,097 Italy 2,071 India 1,877 Australia Brazil China Canada France Germany India Indonesia Italy Japan Netherlands Poland Russia Saudi Arabia South Korea Spain Sweden Switzerland Thailand Turkey United Kingdom United States

Total vs. Per Capita GDP Per capita is ‘per person’ – total GDP of the country divided by the population

Three ways to calculate National Income Remember the desert island? Remember circular flow? income = expenditure = output We can measure any of these to calculate GDP

Can you calculate the total contribution to GDP here? £1600 We have to be careful not to double count – we add ‘value added’ at each stage of production. £95 £550

The UK economy has become increasingly based on producing services…

But there are some problems with using GDP as a measure of performance: Some activity goes uncounted - things we do for ourselves or our friends without payment - activities intentionally hidden from gov’t (black market) Doesn’t tell us the income of the normal citizen - most of GDP could be in the hands of a few very rich people - Even GDP per capita doesn’t reveal this difference Difficult to compare countries - the basket of goods that your money will buy in each country may be very different, so different standards of living could exist for the same GDP figure

Is GDP all that? Happiness? Well-being? Easterlin paradox? Relative versus absolute income?

To what extent does a wealthier population make for a happier population?