Notes (1/27/15)- GDP/GNP

• GDP- total dollar value of all goods & services produced within a country's borders within a given year
• GNP- total value of all final goods and services produced by Americans in a year

• Included in GDP:
• C+Ig+G+Xn
• C:consumption
• 67% of economy
• has to be final good or service
• Ig: gross private domestic investment
• factory equipment maintenance
• new factory equipment
• construction of housing
• unsold inventories of products built in a year
• G: government spending
• military spending
• education
• Xn: net exports
• exports-imports
• Excluded from GDP:
• (1) Non-market activities
• volunteering
• family work
• illegal drugs
• (2) Intermediate goods
• goods/services that are purchased for resale or for further processing
• trying to avoid double or multiple counting
• things that go into making something
• (3) Used or second-hand goods
• not counted because it was counted the first time purchased
• (4) Financial transactions
• stocks, bonds, and real estate
• (5) Gifts or transferred payment
• private transfer payments produce no output
• public transfer payments recipients contribute nothing to the current production

Calculating Cost of GDP:

• Expenditure approach
• C+Ig+G+Xn=GDp
• Income approach- add up all the income earned by households and firms in a single year
• Wages+Rent+Interest+Profit+Statistical Adjustments

Budget Formula: government purchases of goods & services + government transfer payments - government tax and fee collections

                   -if # is positive = deficit

                   -if # is negative = surplus

Trade Formula: exports - imports

GNP Formula: GDP + net foreign factor payment

NNP Formula: GNP - depreciation

NDP Formula: GNP - depreciation  

National Income Formula: (1) GDP - indirect business taxes - depreciation - net foreign factor payments (2) compensation of employees + rental income + interest income + proprietors income + corporate profits

Disposable Personal Income Formula: national income - personal household taxes + government transfer payments

Nominal GDP: the value of output produced in current prices

          -price * quantity

          -an increase from year to year if either output or price increases

Real GDP: the value of output produced in constant or base year prices

          -price * quantity 

          -can increase from year to year only if output increases (output measured by quantity)

          -real GDP only reflects base year prices because of inflation

Price Index

• measures inflation by tracking changes in the price of a market basket of goods compared to the base year
• price of market basket of goods in current year / price of market basket of goods in base year * 100

GDP Deflator

• price index used to adjust from nominal to real GDP
• in base year, GDP deflator will equal 100                                                                        
• for years after base year, GDP deflator is greater than 100
• for years before base year, GDP deflator is less than 100
• Nominal GDP / Real GDP * 100

Calculating Inflation

• new GDP deflator-old GDP delfator / old GDP deflator * 100