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GDP Introduction

What is GDP?

Kerry Hartley

on 29 April 2010

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Transcript of GDP Introduction

Gross Domestic Product Microeconomics Macroeconomics Defined as the study of the behavior and decision making of entire economies Macroeconomists analyze the economy using National Income Accounting, statistical measures that track the income, spending, and output of a nation. This is the Unit about Economic Indicators! Consumer Price Index
Producer Price Index
Unemployment Rate

Just to name a few

But the mother of all indicators is... GDP is defined as the total market value of all goods and services produced in a given year The Components of GDP A good or service must fulfill the following to be included in GDP Be a final good rather than intermediate
G or S must be produced during the time period analyzed, regardless of sale date.
G or S must be produced within a nation’s borders. Calculating GDP GDP= C + I + G + (X-M) Personal Consumption – includes all spending of households on durable goods, nondurable goods, and services. Investment Consumption- measures two categories of business spending

1.)Fixed investment- new construction and purchase
of capital goods

2.)Inventory investment (unconsumed output)- unsold
goods that businesses keep on hand

Government Consumption- expenditures of federal, state, and local governments on G and S X= Exports

M= Imports

Net Exports= (X-M) – Foreign Trade
GDP + income earned abroad by U.S. businesses and citizens

-income earned in U.S. by foreign businesses and citizens

= GNP – depreciation of capital stock

=NNP – indirect business taxes

=NI – income earned but not received

+ income received but not earned

= PI – personal taxes

Gross National Product- the annual income earned by U.S. owned firms and U.S. Residents Net National Product (NNP) is the total market value of all final goods and services produced by citizens of an economy during a given period of time (Gross National Product or GNP) minus depreciation.

Depreciation (also known as consumption of fixed capital) measures the amount of GNP that must be spent on new capital goods to maintain the existing physical capital stock.

The income earned by a country's people, including labor and capital investment.
An individual's total earnings from wages, passive enterprises, and investment interest and dividends.
The amount of income left to an individual after taxes have been paid, available for spending and saving. Ways to Analyze GDP We report GDP quarterly. (It can help us to define when a recession occurs and when we are recovering.)

1.Nominal GDP- measured in current dollars
2.Real GDP- measured in constant dollars ($ adjusted for inflation)
Income Excluded from GDP Count Public Transfer payments- ex. Social Security Welfare Checks Private Transfer Payments- ex. Money transfers between individuals- like an allowance Financial Transactions- ex. Buying/Selling of stocks and bonds after IPO Second-hand sales – ex. getting a used car Non-market activities- ex. housework, chores, etc. Underground economic activity- “black market” TYPE I GDP (4 lines)

Explain why GDP is an accepted way of measuring the economy, despite its known drawbacks.
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