Macroeconomics Unit II: Gross Domestic Product (GDP) & Gross National Product (GNP)

GROSS DOMESTIC PRODUCT

• Total dollar value of all final good and services produced within a country's borders within a given year.

Ex. On American soil

    

Gross National Product

• Total dollar value of all final goods and services produced by Americans in a year.

Ex. American Nike Factory in China

GDP Calculations

C + IG + G + Xn

• C = Consumption Individuals contribute 67% to economy (purchasing final goods and services)
• IG = Intermediate Goods

1. New Factory Equipment
2. New Construction Housing
3. Factory Equipment Maintenance
4. Unsold inventory of products built in a year

• G = Government Spending
• Xn = Net Exports 

1. (exports-imports)

Not Included in GDP

1. Used or second hand goods
2. Intermediate Goods (goods and services bought for resale or further processing and manufacturing)
3. Non-Market Activity (illegal drugs, unpaid work, doing own repairs, prostitution, babysitting, growing own fruits and vegetables to eat)
4. Financial Transactions (stocks, bonds, and real estate)
5. Gifts on Transfer Payments

• Private: Produces no output, one individual provides to another individual.

Ex. Scholarships

• Public: Recipient contributes nothing to output or production.

Ex. Welfare and Social Security

Equations

• Budget: government purchases of goods and services + government transfer payments - government tax/fee collection (If a positive number it is a deficit and a negative number is a surplus)
• Trade: exports - imports  (If a positive number it is a surplus and a negative number is a deficit)
• GNP: GDP + net foreign factor payment
• Net National Product: GDP - depreciation
• Net Domestic Product: GDP -depreciation
• National Income: GDP - indirect business taxes - depreciation - net foreign factor payment
• Disposable Personal Income: National Income - personal household taxes + government transfer payment.

Nominal GDP

• A value of output produced in current prices
• (Price) x (Quantity)
• Can increase from year to year in either output or price increase

Real GDP

• A value of output produced in constant or base year prices
• is adjusted for inflation
• (Base year price) x (Current year quantity)
• Can increase from year to year only if output increases

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) x (Price of market basket of goods in base year)) x 100

GDP Deflator

• Also a price index that is used to adjust from nominal to real GDP
• Before base year: GDP Deflator is less than 100
• Base year: GDP Deflator will equal 100
• After base year: GDP Deflator will be greater than 100
• ((Nominal GDP) / (Real GDP)) x 100

GROSS NATIONAL PRODUCT

Income Approach

• Add up all income earned by households and firms in a single year.
• Equation: W + R + I + Statistical Adjustments
• Wages
• Rents
• Interest Payments
• Profits

Expenditure Approach

• Add up market value of all domestic expenditures made on final goods and services in a single year.
• Equation: C + IG + G + Xn