GDP Powerpoint 2011-2012

GDP and Economic Well-Being • • GDP is the best single measure of the economic well-being of a society GDP per person tells us the income and expenditure of the average person in the economy GDP • IS THE MARKET VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED WITHIN A COUNTRY IN A GIVEN PERIOD OF TIME • ( IN OTHER WORDS IT PUTS A DOLLAR VALUE FOR AN ECONOMIES PRODUCTION) • Example-Fords made in Michigan go towards GDP • Hondas made in Michigan go towards GDP-even though the company is from Japan • As long as it is in our borders it counts towards GDP INVENTORY IS A FINAL GOOD • Goods that are placed into inventory are considered to be “final” and included in GDP as a firm’s inventory investment GDP-FINAL AND INTERMEDIATE GOODS • MEASURES THE FINAL GOOD • IF A PAPER COMPANY MAKES PAPER AND SELLS IT TO HALLMARK WHICH THEN SELLS THE GREETING CARD ONLY THE FINAL PRICE OF THE GREETING CARDS IS MEASURED BY GDP • INTERMIDIATE GOOD-THE PAPER • FINAL GOOD-THE CARD GOODS AND SERVICES ARE MEASURED WITH GDP • GOOD-CD OF MIKE JONES YOU BUY • SERVICE- CONCERT OF MIKE JONES WITHIN THE COUNTRY • IF TOYOTA MAKES A CAR IN THE US THAT GOES TOWARDS THE US GDP • IF EXXON SELLS GAS IN CHINA DOES NOT COUNT TOWARDS GDP IN A GIVEN PERIOD OF TIME • THE GOVT WILL TAKE THE GDP DATA AND AJUST IT FOR SEASONALITY • FOR EXAMPLE XMAS IS A BIG BOOST TO GDP • If a Canadian citizen works temporarily in the United States, the value of his output is included in GDP for the United States If an American owns a firm in Haiti, the value of the production of that firm is not included in U.S GDP GDP • GDP-GROSS DOMESTIC PRODUCT • GDP MEASURES TWO THINGS AT ONCE • TOTAL INCOME OF EVERYONE IN ECONOMY • AND • TOTAL EXPENDITURE ON THE ECONOMY’S OUTPUT OF GOODS AND SERVICES Real and Nominal GDP Year Price of Hot dogs Quantity of Hot dogs Price of Hamburgers Quantity of Hamburgers 2001 $1 100 $2 50 2002 $2 150 $3 100 2003 $3 200 $4 150 Calculating the GDP Deflator: 2001 ($200/$200) x 100 = 100 2002 ($600/$350) x 100 = 171 2003 ($1200/$500) x 100 = 240 Finding inflation with Deflator • Current Year Deflator – Previous Year Deflator divided by previous years deflator • Or • Current – Previous • • Previous * 100 = inflation rate Calculating Inflation Rate • GDP Deflator = Nominal GDP / Real GDP X 100 • Inflation Rate = (Current Year’s GDP Deflator – Previous Year’s GDP Deflator) / Previous Year’s GDP Deflator X 100 • • • Inflation Rate Current Year GDP Deflator – Previous Year GDP Deflator *100 Previous Years GDP Deflator Real and Nominal GDP Year Price of Hot dogs Quantity of Hot dogs Price of Hamburgers Quantity of Hamburgers 2001 $1 100 $2 50 2002 $2 150 $3 100 2003 $3 200 $4 150 Calculating the GDP Deflator: 2001 ($200/$200) x 100 = 100 2002 ($600/$350) x 100 = 171 2003 ($1200/$500) x 100 = 240 Use the equation for Inflation rate to solve for inflation Remember it is current-previous divided by previous Year Year Year Year Price of Footballs $10 12 14 Quantity of Footballs 120 200 180 Price of Basketballs $12 15 18 Quantity of Basketballs 200 300 275 Nominal Gdp year 1? Nominal Gdp Year 2? Nominal Gdp year 3? Nominal GDP in Year = ($10 × 120) + ($12 × 200) = $3,600 Nominal GDP in Year = ($12 × 200) + ($15 × 300) = $6,900 Nominal GDP in Year = ($14 × 180) + ($18 × 275) = $7,470 Year Basketballs Year Price of Footballs Quantity of Footballs Price of Basketballs $10 120 $12 200 Year 12 200 15 300 Year 14 180 18 275 • • • • Using Year as the Base Year: Real GDP in Year = ? Real GDP in Year = ? Real GDP in Year = ? Quantity of Year Basketballs Year Price of Footballs Quantity of Footballs Price of Basketballs Quantity of $10 120 $12 200 Year 12 200 15 300 Year 14 180 18 275 • Using Year as the Base Year: • Real GDP in Year = ($10 × 120) + ($12 × 200) = $3,600 • Real GDP in Year = ($10 × 200) + ($12 × 300) = $5,600 • Real GDP in Year = ($10 × 180) + ($12 × 275) = $5,100 • (Note that nominal GDP rises from Year to Year 3, but real GDP falls.) Year Basketballs Year Price of Footballs Quantity of Footballs Price of Basketballs $10 120 $12 200 Year 12 200 15 300 Year 14 180 18 275 • GDP deflator for Year = ? • GDP deflator for Year = ? • GDP deflator for Year =? Quantity of Year Basketballs Year Price of Footballs Quantity of Footballs Price of Basketballs Quantity of $10 120 $12 200 Year 12 200 15 300 Year 14 180 18 275 • GDP deflator for Year = ($3,600/$3,600) × 100 = × 100 = 100 • GDP deflator for Year = ($6,900/$5,600) × 100 = 1.2321 × 100 = 123.21 • GDP deflator for Year = ($7,470/$5,100) × 100 = 1.4647 × 100 = 146.47 • • • • Year Year Year Year • • • Nominal GDP in Year = ($10 × 120) + ($12 × 200) = $3,600 Nominal GDP in Year = ($12 × 200) + ($15 × 300) = $6,900 Nominal GDP in Year = ($14 × 180) + ($18 × 275) = $7,470 • • • • • Using Year as the Base Year: Real GDP in Year = ($10 × 120) + ($12 × 200) = $3,600 Real GDP in Year = ($10 × 200) + ($12 × 300) = $5,600 Real GDP in Year = ($10 × 180) + ($12 × 275) = $5,100 (Note that nominal GDP rises from Year to Year 3, but real GDP falls.) • • • GDP deflator for Year = ($3,600/$3,600) × 100 = × 100 = 100 GDP deflator for Year = ($6,900/$5,600) × 100 = 1.2321 × 100 = 123.21 GDP deflator for Year = ($7,470/$5,100) × 100 = 1.4647 × 100 = 146.47 • Calculate the inflation rate for years 1, 2, Price of Footballs $10 12 14 Quantity of Footballs 120 200 180 Price of Basketballs $12 15 18 Quantity of Basketballs 200 300 275 Year Price of Hot dogs Quantity of Hot dogs Price of Hamburgers Quantity of Hamburgers 2001 $1 100 $2 50 2002 $2 150 $3 100 2003 $3 200 $4 150 Calculate Nominal GDP, Real GDP and Inflation Rate for all three years GDP and Economic Well-Being • • GDP is the best single measure of the economic well-being of a society GDP per person tells us the income and expenditure of the average person in the economy SHORTCOMINGS OF GDP Non-market Transactions don’t count Earthquakes, divorces, etc increase GDP Leisure isn’t factored in Improved Product Quality The Underground Economy GDP’s impact on the Environment Per Capita Output Countries with low GDP per capita have more infants with low birth weight, weight higher rates of infant mortality, mortality higher rates of maternal mortality, mortality higher rates of child malnutrition, malnutrition and less common access to safe drinking water water Also, fewer go to school and they have fewer teachers teachers They have fewer TVs and telephones, telephones fewer paved roads roads They also win fewer Olympic medals medals NIA NS 1-10 GDP is the monetary value of all final domestic goods/services produced (by/within) a nation in one year If N.F.F.I is positive, positive which means U.S profits are greater in the ROW than foreign profits in the U.S., then (GDP/GNP) is larger Double or multiple counting can be avoided by counting only (intermediate/final) goods (Final/Intermediate) goods and services refer to products purchased by the ultimate users users Transfer payments [when you take tax money from those who are working & give it to those who are not working] (do/do not) count in GDP because they (do/do not) reflect current production (The purchase of 100 shares of DELL stock/ The purchase of a drill press) is not considered real investment investment If depreciation exceeds gross private domestic investment, investment it can be concluded that In is (positive/negative) & we have declining productive capacity capacity Depreciation can be determined by (adding/subtracting) In from Ig The largest component of GDP (spending) is (C/Ig/G/Xn) and the smallest is (C/Ig/G/Xn) NDP is (GDP-indirect business taxes/GDP-Depreciation) If this is Pat then this is “The End” ... included in GDP for the United States If an American owns a firm in Haiti, the value of the production of that firm is not included in U.S GDP GDP • GDP- GROSS DOMESTIC PRODUCT • GDP MEASURES... US GDP • IF EXXON SELLS GAS IN CHINA DOES NOT COUNT TOWARDS GDP IN A GIVEN PERIOD OF TIME • THE GOVT WILL TAKE THE GDP DATA AND AJUST IT FOR SEASONALITY • FOR EXAMPLE XMAS IS A BIG BOOST TO GDP. . .GDP and Economic Well-Being • • GDP is the best single measure of the economic well-being of a society GDP per person tells us the income and expenditure