Gross Domestic Product

oppositemincedManagement

Oct 28, 2013 (3 years and 9 months ago)

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Intro to Macroeconomics Day 2:
Gross Domestic Product

The Big Picture

Chapter 9 (p 197
-

202)

Review: Macroeconomics



the study of the economy as a whole



the behaviour of ALL the markets that make
up the economy of a particular country

Measuring Performance

problem

in macroeconomics:


How can you measure the performance of an entire
economy?


Looking at the performance of many markets all at the
same time



Unemployment rate (last day)


Gross Domestic Product (today)

Gross Domestic Product

The total market value of all goods and
services produced in a country in one year


GDP is calculated for a specific country


Canada’s GDP for 2011 (14
th

overall)


$1,395,374,000,000


USA GDP for 2011 (1
st

overall)


$15,075,675,000,000


*according
to
International Monetary
Fund


Calculating GDP

Expenditure method


Add up the total money spent on all goods and
services in one year


Income method



Add up all the income earned by workers producing
goods and services in one year


These two measures SHOULD be the same for a given
economy. Why?


Calculating
GDP: Formula
for Expenditure Method


GDP = C + G + I + (X


M)


C


household consumption, money spent of goods and services by
individuals and families



G


government spending (healthcare, education, roads, wages
etc.)



I


Investment, spending to increase future production (factories,
machines etc.)



X


Exports, products built in Canada, but sold in other countries



M


Imports, products built in other countries but sold within
Canada

Prices Affect GDP


If prices for goods/services increase over a year,
the GDP will appear to increase as well



Not an accurate measure of the economy;
country is not actually producing more



Use “
REAL GDP
” instead; GDP measured in
“constant dollars”


Adjusted for short term increases/decreases in price

Measuring an Economy


Economic growth (amount an economy expands in a
given year) is measured by comparing real GDP over
two years


Canada real GDP 2010

$
1,587,558 (millions)

Canada real GDP 2011


$
1,628,295 (millions)



Growth =
real GDP 2011


real GDP 2010







real GDP 2010

Growth =
1,628,295


1,587,558



=
2.6% growth







1,587,558

Usefulness
of GDP?


GDP is often used to measure the
prosperity/standard of living for different countries
around the world



Is this fair?



Divide GDP by population to get
GDP per capita


Average income for each person in that country



Higher GDP per capita should indicate higher
standard of living