1. Gross Domestic Product

2. GDP Gross = entire; whole Domestic = within a country’s borders
Product = good or service
GDP = the whole amount of goods and services produced within a country’s borders

3. Gross Domestic Product (GDP)
Despite its limitations, the most important measure of a nation’s economic performance is its Gross Domestic Product (GDP): the dollar value of all final goods and services produced within a country’s borders in a given year

4. Important Parts of the Definition of GDP
Final goods and services are products in the form sold to consumers
Intermediate goods are used in the production of the final goods
Example: the price of a completed house (final good) is added to GDP, but not the items used to produce the house such as lumber, nails, windows, etc. (intermediate goods)

5. Important Parts of the Definition of GDP
Produced within a country’s borders:
Example for calculating the GDP of the United States:
U.S. GDP includes cars made in Ohio by a Japanese car company but does not include cars made in Brazil by an American automaker

6. Nominal Versus Real GDP
Nominal GDP=GDP measured in current prices
Real GDP=GDP measured in constant (unchanging) prices
Real GDP is more accurate because a general increase in prices can appear to make GDP rise, when in fact output has not risen
Example: Movie Theatre Activity

7. Criticism of GDP
Does not take into account a country’s standard of living (ex. literacy rate, mortality rate, income distribution, poverty, etc.)
Gini Coefficient = level of income inequality (0 = perfect equality; 100 = perfect inequality)