Unit II: Gross Domestic Product

Gross domestic product/ GDP: total market value of all final goods and services produced within a country's borders within a given year.

Gross national product/GNP: a measure of what citizens produce and whether they produce these items within a country's borders.

GDP has four parts and these four parts are used to calculate it.

The "C" stands for personal consumption expenditures, which are finished goods or services. 67% of the economy is spent on this section.

The "Ig" stands for gross private domestic investment. 17% of the economy is spent on this section. There are four things fall in this section:

1. factory equipment maintenance
2. new factory equipment
3. construction of housing
4. unsold inventories or products built in a year

The "G" stands for government purchases of goods and services 20% of the economy is spent on this section.

The "Xn" stands for net export which can be found found using this formula: Xn = exports - imports. -4% of the economy is spent on this section.

 

Not everything is counted in GDP though.

     Excluded in GDP:
1)Intermediate goods
    -inputs used to produce final goods and services
    -avoid double or multiple counting
2) Used or Second hand goods
    -avoid double or multiple counting
3) Stocks and bounds
    -no production involved
4) Gifts or Transfer Payment
    -Private + public
    -Scholarships, social security, unemployment
5) Illegal Activities
6) Unreported Business activities
    -Tips
7) Non- Market Activity
    -Volunteer, babysitting

There is another way to calculate GDP: