Unit II (GDP)

• GDP (Gross Domestic Product): total market value that all goods and services that is produced with in a country's borders with in a given year

• What's included:

- production made in USA of a foreign product 

C - personal consumption expenditures (65%)

• Buying a contour kit at Sephora 

Ig - gross private domestic investment (17%)

• new factory equipment

•  new factory equipment maintenance 

•  construction of housing  

• unsold inventory of product built in a year 

G - government spending = a fortune (20%)

Xn - net exports (-2%)

•  exports - imports = net

What's not Included:

- GNP: the total value of all final goods and services by citizens of that country on its land or foreign land 

-Ex: Forever 21 clothes produced in China  

• -formula: GNP = GDP + net foreign factor payment

- Intermediate goods - goods that require further processing before they are ready for final use

• ex: sugar cane, car parts, and etc 

- Used/Secondhand goods (avoid double counting)

• ex: a used car from Car Max 

         -Financial Transactions (stocks and bonds)
   
         -Illegal Activities - drugs, black market

         -Unreported Business Activity (unreported tips)

        -Transfer Payments 

• public; social security, welfare, VA.

• private; scholarship

       -Non market Activity - work that is self-performed

• ex: volunteering and babysitting

Two ways to calculate GDP:

Income approach: add up all of the income that resulted from selling all final goods and services produced in a year 

• GDP = (wages) +  (rents) + (interest) +  (profit) + Statistical adjustments (indirect business taxes, depreciation, net foreign factor payment)

Expenditure approach: add up all the spending on final goods and services produced in a year

• GDP = C + Ig + G + Xn

• Compensation of employees - includes wages, salaries, fringe benefits, social security, contributions, held and planned

• Rents - income of prop. owners

• Interest - income that comes from $

• Corporate Profits - income of the company stock holders

• Proprietors Income - income of sole proprietorship and partnerships

• Net domestic product (NDP)

-GDP - depreciation (consumption of fixed capital) 

• Net national product (NNP)

-GNP - depreciation