ECONOMIC INDICATORS

1
ECONOMIC INDICATORS

• GROSS DOMESTIC PRODUCT (GDP)
• GROSS NATIONAL PRODUCT (GNP)

MEASURING ECONOMIC GROWTH
2
GDP Associated Concepts

• Intermediate Goods
• Final Goods
• Nominal GDP
• Real GDP
• Inflation
• GDP per capita
• GDP adjusted for PPP.
• (Purchasing Power Parity)

3
UNDERSTANDING GDP

• GDP GROSS DOMESTIC PRODUCT
• What is GDP?
• The total value of all final goods and services
• produced in an economy within one year or a
  specified period of time.
• The economic growth of a country is measured by
  the increase or decrease in GDP.

4
GDP FINAL GOODS

• What are final goods?
• Final goods are complete products sold to
• consumers. For example a car you purchase from
  a
• Holden is a final good. However, the
  accelerator
• pedal in the car is an intermediate good.
• The cost of producing intermediate goods are not
  included
• in GDP calculations.
• Why???

5
DIFFERENCES BETWEEN INTERMEDIATE AND FINAL GOODS

• Classify each of the following as either an
• intermediate or final good
• Windscreen wiper
• Mobile phone
• Bulb in a Television
• Computer chip
• Staples
• Pizza
• Aircraft propeller

6
What is the total GDP of the United States?

• The 2009/10 estimate for US GDP is 14.4 trillion
  dollars or 14400 billion.
• At GDP per capita (GDP expressed on per person
  basis), this was the equivalent to 48,000 for
  every person living in the USA.
• Naturally, GDP per capita does not imply, every
  person has an income of 48,000. Many people
  earn a lot less and a lot more in the United
  States.

7
How does US GDP compare to the rest of the world?

• The US is still the largest economy in the world
  despite the GFC (global financial crisis)
• China recently overtook Japan (mid 2010), to
  become the worlds second largest economy.

Country Rank (Order) (CIA World Fact Book) Total GDP (trillions) at the official exchange rate GDP per Capita
1. United States 14.4 trillion 48,000
2. China 4.7 trillion 6,600
3. Japan 4.6 trillion 32,600
4. Germany 3 trillion 34,900
5. France 2.9 trillion 32,700
6. United Kingdom 2.7 trillioin 36,600
8
Based on GDP per capita, what are the richest
countries in the world?

• 1 Liechtenstein 118,000 2007
• 2 Qatar 103,500 2008
• 3 Luxembourg 81,100 2008
• 4 Bermuda 69,900 2004
• 5. Kuwait 57,400 2008
• 6 Jersey 57,000 2005
• 7 Norway 55,200 2008
• 8 Brunei 53,100 2008
• 9. Singapore 52,000 2000
• 10 USA 48,000 2008

9
GROSS NATIONAL PRODUCT (GNP)

• Gross National Product is GDP
• Net Foreign Income from Abroad.
• For example, GNP for the US would be
• GDP (plus)
• US company/individual income from overseas
• (minus) .
• Foreign company/individual income from the US

10
Which is greater GDP or GNP?

• When Americans receive more income from their
  overseas investments than foreigners receive from
  their investments in the United States, American
  GNP will be somewhat larger than GDP in that
  year. If Americans receive less income from their
  overseas investments than foreigners receive from
  their US investments, on the other hand, American
  GNP will be somewhat smaller than GDP.

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What is US GNP?

• The United States, stopped using GNP statistics
  in its national accounts in 1992, although these
  figures are still collected by statistical
  agencies.
• US GNP and GDP have been similar for a number of
  years.
• However, for many countries their GNP is
  significantly less than their GDP.

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What was the increase in US GNP from 1947 to 2009?
13
GDP A VITAL ECONOMIC INDICATOR

• Why is GDP a very important economic indicator?
• It helps to measure the size of a countrys
  economy relative to other countries.
• All government spending can be expressed as a
  percentage of GDP for global comparison purposes.
  
• GDP can be expressed on a per capita (person
  basis) to further assist our understanding of
  global differences between nations regions.

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GDP A VITAL ECONOMIC INDICATOR

• Countries can be classified into different income
  groups based on GDP figures.
• For example the high income, middle income, and
  low income countries.
• GDP figures are used in all reference books, and
  business/ economic journals.

15
GDP A MEASURE OF ECONOMIC GROWTH

• A countrys growth rate is determined by the
  percentage increase or decrease in GDP.
• For example if GDP was 10 billion in 2007 and
  increased to 10.5 billion in 2008, the growth
  rate for the country would be 5 per annum.
  However it is necessary to distinguish between
  Real and Nominal GDP. (future slides)

16
What is a recession?Negative GDP Growth

• Two quarters of negative economic growth.
• or 6 months of negative economic growth.
• What does negative economic growth mean?
• GDP went backwards (declined from the previous
• period)
• Expansion increase in GDP / economic growth
• Contraction decrease in GDP / economic growth

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Economic Growth RatesHigh Income Advanced
Economies
Country GDP Growth Rates Economist Magazine Prediction Full Year 2010 August 12th 2010.
Singapore 12.3
South Korea 5.9
Canada 3.5
Australia 3.1
Japan 3.2. (mainly export led growth, very weak domestic demand)
United States 3
Germany 1.9
France 1.4
Britain 1.4
Greece -4.4 (negative)
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Economic Growth RatesDeveloping Countries
Country GDP Growth Rates Economist Magazine Prediction Full Year 2010 August 12th 2010.
China 9.9
India 8
Brazil 7.8
Argentina 6.8
Vietnam 6.4
Indonesia 5.6
Chile 5.2
Colombia 4.6
Mexico 4.6
South Africa 2.8
Venezuela -5.5 (negative growth)
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Nominal GDP vs Real GDP

• Nominal GDP
• GDP which is not adjusted for inflation.
• As a consequence nominal GDP figures are
  distorted by inflation and are not accurate.
• Real GDP
• GDP which is adjusted for inflation.
• As consequences these GDP figures are more
  accurate, than nominal figures.

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NOMINAL REAL GDP

• Case Study Example
• In economy XYZ GDP increased from 10 billion in
  2007 to 10.5 billion in 2008. Therefore our
  growth rate was 5 per annum. We can call this
  figure the nominal increase in GDP or the
  nominal growth rate. However, what if the
  inflation rate for this same period was 3.
  Therefore 3 of our increase in GDP was not due
  to real growth, but rather to an increase in
  prices. Real GDP or the real growth rate is
  only 2 per annum.

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Real GDP Basic Exercises(Calculations)

• Waxland Economy
• Waxland had a total GDP of 550 billion at the
• end of 2007. At the end of 2008, GDP was
• calculated to be 660 billion. However, the
• inflation rate during 2008 was 15. Calculate
  the
• real GDP growth rate for 2008 in dollar and
• percentage terms.

22
Waxland Economy (Proposed Solution to Question)
23
Real GDP Exercises

• Swaziland Economy
• Swaziland had a total GDP of 850 billion at the
• end of 2007. At the end of 2008, GDP was
• calculated to be 910 billion. However, the
• inflation rate during 2008 was 5. Calculate
  the
• real GDP growth rate for 2008 in percentage
• terms.

24
Swaziland Economy (Proposed Solution to Question)
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GDP PURCASHING POWER PARITY (PPP)

• Internet Activity
• The GDP figures provided in slide 7 related to
  GDP at the official exchange rate.
• However, GDP at Purchasing Power Parity is
  considered more accurate by many commentators.
• What do they mean by PPP?
• Go the following website
• https//www.cia.gov/library/publications/the-worl
  d-factbook/rankorder/rankorderguide.html
• Click on Economy GDP (Purchasing Power Parity)

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GDP PPP DefinitionCIA Factbook
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GDP PPP Rankings

• What countries are in different position when
  using GDP at purchasing power parity?
• Why do you think this is the case?

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• 850,000
• 750,000
• 10 inflation
• 75,000
• 750,000
• 825,000
• 25,000 Growth
• 825/850
• 2.94 Growth

29

• (850-750)/75013.33
• 13.33-103.33
• 3.3375024.975