Gross Domestic Product By: Mrs. Erin Cervi

Gross Domestic Product G G= Gross- TOTAL D D= Domestic- Made in a country P P= Product- Production of a final good/service during a specific period of time. (GDP) measures our nations (and others around the world) total economic performance – It is an economic indicator! 1991  U.S. gov’t switched from GNP to GDP – GNP: included production of all U.S. resident’s no matter where they were located – WE WANTED TO KNOW WHAT WAS GOING ON IN OUR COUNTRY! Bureau of Economic Analysis (BEA): Bureau of Economic Analysis (BEA): Calculate the GDP in the U.S.

Counted Toward GDP NOT NOT Counted Toward GDP only final goods and services (C, I,G, (X-M)) New (produced that year) Capital resources count if they are NEW Domestically produced Foreign companies w/in U.S. borders Commissions (broker fees, real estate agent fees) Inventories (produced, just not sold) Intermediate goods (NO DOUBLE COUNTING) Old goods/resale goods (already counted before) U.S. companies abroad Financial assets (stocks, bonds, CDs) Non-market activity unpaid labor/do-it-yourself projects, finding own home, buying own stocks, volunteer work under the table transactions b/c no record of transaction (babysitting) Public transfer payments (SS, Medicaid, unemployment) Private transfer payments (gift of money)

Gross Domestic Product (GDP) GDP is measured by totaling money spent on four categories. – GDP= C+I+G+ (X-M)

Consumption Definition: The spending by households on goods and services. – A new car, food, clothes, college tuition, sporting event, health insurance. – Makes up 2/3rds of GDP At the beginning of the 1980’s, just over 60% of the U.S. Gross Domestic Product was consumer spending. Today, consumer spending is close to 70% of GDP. Productivity and Wages–the Big Disconnect

Investment Investment sometimes refers to the purchase of financial products, such stocks, bonds, or even gold, with the hope of making money in the future. Regarding GDP, investment is defined as: purchases that contribute to the overall performance of an economy. There are THREE things that count as investments capital resources/machinery 1.Spending by businesses on capital resources/machinery, factories, equipment, tools, computers, technology, new buildings. new house 2.Individuals buying a new house 3.INVENTORIES: A company's merchandise, raw materials, and finished and unfinished products which have not yet been sold.

Government Spending Definition: Spending by all levels of government on goods and services – Direct payment for goods/services – Military, roads, healthcare

Net Exports Definition: Spending by people outside the United States on US produced goods (exports, or X) Minus spending by people in the United States on foreign goods and service (imports, or M) (X-M) = Net Exports

How is GDP an economic indicator? When the GDP is rising, a national economy is growing. – If the U.S’s GDP increases 3-5% each year =optimal b/c we are growing at a healthy, sustainable rate (a rate that can be kept up). When GDP increases 2% and below it is considered to have a sluggish/declining economy. GDP per capita Even better indicator: real GDP per capita=real GDP/population