# Gdp Explanation

Topics: Consumer price index, Gross domestic product, National accounts Pages: 3 (287 words) Published: July 20, 2013
Definition of GDP
Total market value of All the goods and services Produced By the factors of production Located in a country During a certain period of time Except those produced by households for household consumption. 1

Total market value of

GDP = P1 × Q1 + P2 × Q2 +∙∙∙∙

Q1 = 10 pounds P1 = \$2/pound

Q2 = 4 units P2 = \$100 each

GDP = \$2 × 10 + \$100 × 4 = \$420
2

All the goods and services

Don’t forget services.
3

Remember: Include ALL the goods and services produced

But don’t double count the banana battery which is already under the hood. Final versus intermediate goods

4

Three Faces of GDP
1. Production
– Total value of new products – GDP = P1 × Q1 + P2 × Q2 +∙∙∙∙

2. Expenditure
– Total expenditure on those products – By households, firms, government, foreign countries

3. Income
– Factor income generated in producing those products – Wage + Interest + Rent + Profit GDP = Value of Production = Total Expenditure = Total Factor Income 5

By the factors of production
Land Labor Capital

6

Nominal and Real GDP Year 2004 2005 P1 Q1 P2 Q2 Nom GDP Real GDP \$60 \$84

\$5 × 2 + \$10 × 4 = \$50 \$6 × 4 + \$12 × 5 = \$84

2006

\$8 × 6 + \$15 × 6 = \$138 \$108

Real GDP at constant 2005 prices (Base Year = 2005)
7

GDP Deflator

8

GDP Deflator
Year P1 2004 \$5 Q1 2 P2 Q2 Nom Real GDP GDP \$50 \$60 GDP Deflator \$50 × 100 = 83 \$60 \$84 × 100 = 100 \$84

\$10 4

2005 \$6 4

\$12

5

\$84

\$84

2006 \$8

6

\$10 6

\$138 \$138 \$108 × 100 = 128 \$108

GDP deflator at constant 2005 prices (Base Year = 2005)
9

Consumer Price Index

1983

\$9

\$4

\$43

1984 \$10 × 3 + \$5 × 4 = \$50 1985 \$11 1986 \$12 \$6 \$7 \$57 \$64 10