1. Gross Domestic Product
Ch. 12 Section 1
Gross Domestic Product

2. Guiding Questions
Why does it matter how the economy is doing to the individual?
How do we determine if the economy is healthy?

3. Gross Domestic Product
The dollar value of all final goods and services produced within a country’s borders in a given year.
Terms Defined:
Dollar Value – average price of all goods.
Final Goods/Services – only final products are counted, not intermediate products.
Within the borders – no outsourced goods are counted.
In a Given Year – Only this year’s products/services are counted.

4. What does the GDP Show?
GDP measures the amount of money brought into a nation in a single year through the selling of that nation’s goods and services.
GDP is a measurement of how well a nation’s economy is doing for a particular year. A high GDP means the nation is doing well economically. A low GDP means the nation is doing poorly economically.

5. What does GDP show?
Basically, gross domestic product tracks exchanges of money.
To understand GDP, you need to understand which exchanges are included in the final calculations—and which ones are not.

6. What is GDP? Dollar Value YES – cash value of all goods and services
NO – costs of producing those things
Final Goods/Services
YES – Goods/Services offered to consumers
NO – Intermediate Goods
Within a Country’s Borders
YES – American or foreign countries producing in the US
NO – American companies producing overseas.

7. How to Calculate the GDP – Expenditure Approach
4 Components are included in the calculations of the GDP:
Consumption (C) – durable and nondurable goods
Investment (I) – Business goods and services
Government (G) – Government Employees, Gov’t purchases.
Net Exports – (NE) – Exports minus the cost of imports
GDP = C + I + G + NE

8. GDP = C + I + G + NE CONSUMPTION = C
Largest Aspect of GDP
Durable Goods = Lasting products
Nondurable goods = Food, gasoline, shoes
INVESTMENT = I = Business Purchases
Business investment into equipment
Purchasing a new mine, upgrading software
NOT purchasing financial products (savings)

9. GDP = C + I + G + NE GOVERNMENT SPENDING = G NET EXPORTS = NE
Government expenditures on final goods.
Salaries of public servants, purchases of weaponry
NET EXPORTS = NE
Exports – Total production shipped elsewhere by businesses.
Imports – Total purchases from other countries.
Net = Exports minus Imports.

10. Limitations of GDP
Nonmarket Activities—GDP does not measure goods and services that people make or do themselves.
The Underground Economy—GDP does not account for black market activities or people paid “under the table” without being taxed
Negative Externalities—unintended economic side effects, like pollution or poverty, are not subtracted from GDP
Quality of Life—a high GDP does not necessarily mean people are happier. Why is this?

11. GDP per capita
GDP per capita is gross domestic product divided by midyear population.
So this shows the GDP per person in the economy.
Higher value means higher GDP and economic success.
Using growth in GDP per head rather than crude GDP growth reveals a strikingly different picture of other countries’ economic health

12. GDP (Millions of US$) [trillions]
Rank
Country/Region
GDP (Millions of US$) [trillions]
 World[9]
77,269,168
 European Union[n 1][9]
18,527,116 1
 United States
17,348,075 2
 China
10,356,508 3
 Japan
4,602,367 4
 Germany
3,874,437 5
 United Kingdom
2,950,039 6
 France
2,833,687 7
 Brazil
2,346,583 8
 Italy
2,147,744 9
 India
2,051,228 10
 Russia[n 2]
1,860,598 11
 Canada
1,785,387 12
 Australia
1,442,722 13
 South Korea
1,410,383 14
 Spain
1,406,538 15
 Mexico
1,291,062

13. US GDP in Context 13

14. GDP per capita 2014

15. GDP per Capita 2014
Rank
Country
US$ 1
 Luxembourg
103,187 2
  Switzerland
82,178 3
 Qatar
78,829 4
 Norway
76,266 5
 United States
55,904 6
 Singapore
53,224 7
 Australia
51,642 8
 Denmark
51,424 9
 Iceland
51,068 10
 San Marino
49,139 11
 Sweden
48,966 12
 Ireland
48,940 13
 Netherlands
44,333 14
 United Kingdom
44,118 15
 Canada
43,935

16. Overall What does the GDP show about the nation’s economy?
How do the GDP and the GDP per capita change the conclusions about a country’s health economically?