Economics Notes: Gross Domestic Product
Growth
Gross Domestic Product (GDP) – is the total market value of all FINAL gods and services produced within a country in a year.
It is used for measuring the economic growth of a country – how much a country’s economy has grown from one year to the next
GDP can be calculated in two ways:
1. Expenditure Approach: add p the total spent on final goods and services in one year
2. Income Approach: add up all the income earned in producing final goods in one year
(GDP should be same in each case, since an expenditure for one person is an income for another)
Expenditure Approach Formula for GPD: C + G + I + (X – M)
C = consumption; what households spend on goods and services
(such as durable goods, semi-durable goods, non-durable goods, services)
G = government spending; all government purchases by all levels of government
(such as employee wages, office supplies, hospitals, schools)
I = Investments; purchase of new capital goods for the use in the.
(Production process, construction of new buildings, changes in business inventories)
X = Exports, M = Imports
(X – M) = net exports
Two types of GDP
Nominal GDP; Is the production of goods and services valued at current prices (not adjusted for inflation)
Real GDP; Unlike nominal GDP, real GDP can account for changes in the price level, and prove a more accurate figure
A rising GDP indicates a strong and expanding economy.
A falling GDP is associated with higher unemployment and overall economic weakness.
Things the GDP does not included
1. Intermediate goods and services, which are inputs in the production of goods (i.e. Steel)
2. Second hand goods (not included, since they were already previously counted)
3. Buying & selling of stocks
4. Transfer payments (social security benefits, unemployment compensation, scholarships)
5. Profits from Canadian owned companies overseas & income earned by Canadian citizens ....working aboard
6. Non-market goods and services (baby-sitting)
Gross Domestic Product (GDP) – is the total market value of all FINAL gods and services produced within a country in a year.
It is used for measuring the economic growth of a country – how much a country’s economy has grown from one year to the next
GDP can be calculated in two ways:
1. Expenditure Approach: add p the total spent on final goods and services in one year
2. Income Approach: add up all the income earned in producing final goods in one year
(GDP should be same in each case, since an expenditure for one person is an income for another)
Expenditure Approach Formula for GPD: C + G + I + (X – M)
C = consumption; what households spend on goods and services
(such as durable goods, semi-durable goods, non-durable goods, services)
G = government spending; all government purchases by all levels of government
(such as employee wages, office supplies, hospitals, schools)
I = Investments; purchase of new capital goods for the use in the.
(Production process, construction of new buildings, changes in business inventories)
X = Exports, M = Imports
(X – M) = net exports
Two types of GDP
Nominal GDP; Is the production of goods and services valued at current prices (not adjusted for inflation)
Real GDP; Unlike nominal GDP, real GDP can account for changes in the price level, and prove a more accurate figure
A rising GDP indicates a strong and expanding economy.
A falling GDP is associated with higher unemployment and overall economic weakness.
Things the GDP does not included
1. Intermediate goods and services, which are inputs in the production of goods (i.e. Steel)
2. Second hand goods (not included, since they were already previously counted)
3. Buying & selling of stocks
4. Transfer payments (social security benefits, unemployment compensation, scholarships)
5. Profits from Canadian owned companies overseas & income earned by Canadian citizens ....working aboard
6. Non-market goods and services (baby-sitting)