UNIT TWO(2): GDP

GDP

• GDP stands for gross domestic product. 
• It's the total market value of all final goods and services produced within a countries borders within a given year. 
• INCLUDED IN GDP: 
• Personal consumption expenditures (C)
• Gross private domestic investment (Ig)
• Government spending (G)
• Net exports (Xn)
• Formula is: C + IG + G + (Xn, which is export - import)
• NOT INCLUDED IN GDP:
  1. Used or Second hand goods (avoid double or multiple counting & is only counted once)
  2. Gifts/Transfer Payments (public or private and recipients to gifts contribute nothing to the current production)
  3. Stocks and Bonds (purely financial transactions, no outputs produced)
  4. Unreported business activities (ex.tips)
  5. Illegal Activities (ex. drugs, prostitution...)
  6. Intermediate goods (goods that require further processing before they are ready for final use)
  7. Non- Market Activities (ex. babysitting, volunteer, family work...)
• GNP: Gross National Product
• Measure of what its citizens produce and whether they produce these items within it's borders.
• GDP + Net foreign factor payment 
• Net National Product: GNP - Depreciation 
• Gross private domestic investment: net private domestic investment + depreciation
• Net domestic Product: GDP - Depreciation 

Nominal GDP vs. Real GDP

• Nominal:
• Value of the output is produced in current prices
• output = quantity
• Formula is  P x Q
• Increase from year to year if either the output or the prices increases
• In years after the base year, nominal gdp will exceed real gdp
• Real: 
• It's the value of output produced in constant base year prices that is adjusted for inflation
• Formula is P x Q
• Increases from year to year if ONLY output increases
• current prices = constant prices
• Base Year ---> Nominal GDP= Real GDP
• in years before the base year, real gdp will exceed nominal gdp 

• GDP Deflator- A price in index used to adjust from nominal to real gdp.
• ( nominal gdp / real gdp ) X 100
• In the base year of gdp deflator will equal 100
• For years after the base year,  GDP deflator will be greater than 100
• For years before the base year, GDP deflator is less than 100
  

• Budget Surplus (neg)/ Deficit (pos): Government purchases of goods and services + government transfer payments - government taxes and fee collections 
• Trade Surplus(pos)/ Deficit(neg): Xn
• National Income: comsumption of employees + rental income + interest income + proprietors income + corporate profits OR gdp - indirect businesss taxes - depreciation(consumption of fixed capitals) - net foreign factor payment
• Disposable Personal Income: Number of National income - household taxes + government transfer payments
• Expenditure Approach: Add up all the spending of your final goods and services produced ina given year.
• C + IG + G + Xn
• The same as income approach