Macroeconomic IndicatorsGDP and what it really means!

GDP of various countries around the world! What do you notice?

Gross Domestic ProductThe market value ($) of all final goods and

services produced within a country in a given time period.

http://www.huffingtonpost.com/2014/10/08/china-gdp-tops-us_n_5951374.html

Final vs. IntermediateFinal good or service (included)A good or service that is produced for its final

user and not as a component of another good or service.

Intermediate good/service (not included)

A good or service that is produced by one firm, bought by another firm, and used as a component of a final good or service.

What’s in GDP? Included

Final goods and services only!

Not Included Secondhand sales

Ex. Used clothes, used cars

Intermediate goods Ex. Lead used in pencil

Chores around home Ex. Raking leaves

Do any of these count towards GDP?

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Calculating GDP Expenditure Method

Expenditure Method: When we add up all of the components of the Product Market we can calculate GDP.

GDP per Capita (person) Most meaningful measure Divide Real GDP by population

GDP per capita: China v. US

What is GDP/capita for each country? Why might people in China still not be so bad off despite lower GDP/capita?

http://www.huffingtonpost.com/2014/10/08/china-gdp-tops-us_n_5951374.html

Formulas

1. GDP: 1. Total Product A + Total Product B

(Quantity A x Price A) + (Quantity B x Price B)

2. GDP per capita:1. Total GDP/Population

Let’s try calculating GDP…Country A 10 @ $20

each15 @ $100 each

50 @ $200

20 people

# of pencils made/ price

# of I-pods made/ price

# of Amer. Girl dolls made/ price

Total Popula-tion

Total $ $ $ $ /per capita

How well does GDP measure the welfare of a society (standard of living)?

What items are not included? Non-market transactions

Housework, Self-repairs, Bartering Quality of products Composition of Products

Ex. If country only produces tanks, GDP doesn’t care Underground economy

Informal Economy Tips, babysitting, golf caddying

Black market economy

Practice time!

1. Gibsonvania only produces neckties. They produce 100,000 ties and sell each one for $75. Calculate GDP.

2. There are only 1,576 people living in Gibsonvania. Using your answer from #1, calculate GDP per capita.

3. Company A is offering $184 for $75. Company B is offering $302 for $150. Which company should I invest in? Show me why.

4. Which of the following count towards GDP?1. A Pre-Owned Car2. A Never Used Skateboard

bought at a yard sale3. A New Keychain4. A Gift Certificate given as a

holiday gift