Measuring GDP

1
Measuring GDP

• Chapter 12 Section 2

2
Which is Better?

• A. 1,000 in the bank for working 40 hours a week
  
• OR
• B. 500 in the bank for working 20 hours a week

3
Objectives

• What are the four sectors of the economy?
• What are consumption, investment, government
  purchases, export spending, and import spending?
• How is GDP measured?
• What is per-capita GDP?

4
Expenditure

• Buying goods and services

5
How is GDP Measured?

• 4 Sectors of the Economy
• 1. Household
• 2. Business
• 3. Government
• 4. Foreign

6

• CONSUMPTION
• Any expenditure made by the household sector on
  goods for personal use
• Examples
• televisions, telephones, clothes, lamps, cars,

7

• INVESTMENT
• Any expenditures made by the business sector on
  goods used in producing other goods
• Examples
• tools, machines, factories,

8

• GOVERNMENT EXPENDITURES
• Any expenditure made by federal, state, and local
  governments
• Examples
• Paper, pens, tanks, planes, parks,

9
FOREIGN EXPENDITURES2 categories

• EXPORTS
• Any expenditure made by foreigners for American
  made goods
• Examples
• Cars, wheat, computers,

• IMPORTS
• Any expenditure made by Americans for foreign
  made goods
• Examples
• Cars, radios, computers,

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Calculating GDP

• GDP C I G X - M
• C Consumption
• I Investment
• G Government
• Expenditures
• X Exports
• M Imports

11

• Sample Problem
• Given
• Consumption 4,139
• Investment 796
• Government
• Expenditures 1,131
• Exports 640
• Imports 670
• Find
• GDP

12

• GDP
• C I G X - M
• 4,139 796 1,131 640 670
• 6,036

13
What does a larger GDP say about a country?

• US GDP 13,244 billion
• France GDP 2,231 billion
• A higher GDP does not mean that you are
  necessarily better off.
• It does mean that you have greater production.

14
Bigger GDP does not necessarily mean bigger
per-capita GDP.
GDP
Per-capita GDP

Population
15
MEW

• Measures of Economic Welfare
• Measuring things like happiness and well-being
• This is highly debatable
• Leaves things out such as defense expenditures
  and hospital payments

16
Assessment

• What are the four sectors of the economy?
• What are consumption, investment, government
  purchases, export spending, and import spending?
• How is GDP measured?
• What is per-capita GDP?

17
QUIZ

• 1. In computing GDP, what is subtracted?
• 2. Why?
• 3. If the expenditure is consumption, what part
  of the economy is this?
• 4. What is the measurement that is debatably
  better that GDP?