Unit Two: Notes and Need-To-Knows 1/27/15

Economists collect statistics on income, production, investment, and savings of a country

Gross Domestic Product (GDP) - total dollar value of all goods and services produced within a country's border within a given year.

Gross National Product (GNP) - total value of all final goods and services produced by a countries citizens within year.

Things included in GDP:
C - consumption; final good or service
Ig - gross domestic private investment; factory equipment maintenance; new factory equipment; construction of housing; unsold inventory: products built in a year.
G - government spending
Xn - net export 

Add all of these things up to get your GDP: C + Ig + G + Xn
This method of finding GDP is called the Expenditure Approach.

Things Not Included in GDP: 
1. non-market activities
2. intermediate goods: goods and services purchased for resale on further processing and manufacturing.
3. used or 2nd hand goods
4. financial transactions: stock, bonds, real estate.
5. gifts or transfer payments: money that is given or moved around

• 
  

 Wages + Rent + Interest + Profit + Statistical Adjustment = GDP
This method is called the Income Approach.
Expenditure approach must equal income approach.

budget: gov't purchases of goods & services + gov't transfer payments - gov't tax & free collection
If your budget is a positive number, it is a deficit. if it is negative, it is a surplus. 

trade: export - import

GNP: GDP + net foreign factor payment
NNP (net national product): GNP - depreciation
NDP (net domestic product): GDP - depreciation

national income: GDP - indirect business taxes - depreciation - net foreign factor payment

disposal personal income: national income - personal household taxes + gov't transfer payment

nominal GDP: (Current Year Quantity x Current Price)
real GDP: (Current Year Quantity x Base Year Price)

price index measures inflation by tracking changes in the price of a market basket of goods compared with the base year. ((Current Year Price of Market Basket of Goods) / (Base Year Price of Market Basket Goods)) x 100
          
market basket of goods: (Price x Quantity of that Year) 

GDP deflator is the price index used to adjust from nominal to real GDP

• Base Year GDP is always 100. Years after base year is higher than 100 and years before base year is lower than 100. ( Nominal GDP / Real GDP ) x 100
• 
  

          inflation:             new GDP deflator - old GDP deflator   x 100
                                          old GDP deflator