GDP

Gross Domestic Product (GDP):

• total value of all final goods and services produced in U.S. in a given (one) year
• includes all production and income earned w/in U.S. by U.S. and foreign producers
• does NOT include production outside U.S., even by Americans

Gross National Product (GNP):

• total value of all final goods and services produced by Americans in a year
• includes production or income by Americans anywhere in the world
• excludes production by non-Americans, even in the U.S.

Formula for GDP→C+Ig+G+Xn

• C=personal consumption (67%); purchases of finished goods and services
• Ig=Gross Private Domestic Investment; new factory equipment; construction of housing; factory equipment maintenance; unsold inventory built in a year
• G=Govt spending (ex. buy airplanes, buses)
• Xn=net exports (exports-imports)

Items NOT Counted in GDP:

• used/second-hand goods
• gifts (scholarships)
• stocks and bonds (recycling $)
• unreported business activities (cash tips)
• illegal activities (selling drugs, mafia)
• financial transactions between banks (switching $) and businesses
• intermediate goods→used to finish product
• non-market activities (babysitting, volunteering)

Expenditure Approach→C+Ig+G+Xn=GDP

• income generated from production of goods and services

Income Approach→W+R+I+P (wages+rents+interest+profits+statistical adjustments)→make balanced

• add all income generated from production of final output

**expenditure and income approach MUST be equal

Net Domestic Product (NDP)→GDP adjusted for depreciation (consumption of fixed capital)

National Income (NI)→income earned by American-owned resources, whether it is here/abroad

1. Net National Product (NNP)-Indirect Business Taxes (IBT)
2. CE+RI+II+CP+PI (compensation employee+rental income+interest income+corporate profits+proprietor’s income)
3. GDP-IBT-Depreciation-Net Foreign Factor Payment

Personal Income (PI)→income received by households regardless of source

Disposable Personal Income (DPI)→after tax income, available for household consumption

• NI-Household Taxes (HT)+Govt Transfer Payments (GTP)

Nominal GDP (NGDP)→measures GDP in current dollars, no matter what output is (PxQ)

  Real GDP (RGDP)→measures GDP in constant dollars, adjusted for inflation

GDP Deflator→measure of level of prices of all new domestically produced final goods and services in economy

• (NGDP/RGDP)x100

Inflation rate→a rise in the general level of prices

• (price index in year 2 (current year)-price index in year 1 (previous year))/price index in year 1 (previous year)

Consumer Price Index (CPI)→most widely used measure of overall price level in U.S.

• (price of market basket in particular year/price of same market basket in previous year)x100

GNP=GDP+Net Foreign Factor Payment

Net Private Domestic Investment+Depreciation=Gross Private Domestic Investment

*Net Domestic Product=GDP-Depreciation

*Budget=Govt Purchases of G&S and Govt Transfer Payments-Govt Tax & Fee Collections

*Trade=Exports-Imports