January 27, 2017

GDP

• The total value of all final goods and services produced within a country’s borders in a given year. This includes all the production/income within a country by its country’s producers

Included in GDP

• C = consumption

67% of the economy

Where money is spent

• Ig = gross private domestic investment

17% of the economy

Examples: construction of new housing, new factory equipment, factory equipment maintenance, unsold inventory of products built in a year

• G = government spending

18% of the economy

Examples: school buses, highways, defense

• Xn = net exports

(Exports - Imports)

-2% of the economy because the United States imports more than it exports

Excluded in the GDP

• Intermediate goods: to avoid double or multiple counting
• Used or second hand goods: to avoid double counting
• Unreported business activities: tips must be reported
• Stocks and bonds (purely financial transaction)
• Non-market activity: volunteer work
• Illegal activity: black market
• Gifts or transfer payments: public or private (examples: scholarships. Social security, unemployment, or somebody gifting you money)

GNP

• The total value of goods and services produced by Americans in a given year
• Includes the production/income earned by americans anywhere in the world
• Excluded in the GDP if goods are produced by non-Americans, even if the goods were produced in the United States