LectureNotes_ch05_GDP

8/3/2019 LectureNotes_ch05_GDP

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Macroeconomics ± Dr. Saue

1

Measuring a Nation¶s Income (ch5)

A. Gross Domestic Product (adds up spending)is the market valueof all final goods and services producedwithin a country¶s borders

in a given time.

Does not include:- home production- illegal activities- used goods- environmental destruction

2010 GDP

Rank CountryGDP(millions of USD)

² World 61,963,429 ² European Union 16,106,896

1 United States 14,624,184

2 China 5,745,133

3 Japan 5,390,897

4 Germany 3,305,898

5 France 2,555,439

6 United Kingdom 2,258,565

7 Italy 2,036,687

8 Brazil 2,023,528

9 Canada 1,563,664

10 Russia 1,476,912

Source: IMF

Make an observation about your plotted points.

The US is the biggest economy in the world and China is the second biggest. That being said, how dothey compare?

What percent of the world economy does the US account for?

What percent of the world economy does China account for?

On the axis given, plot each nation¶s 2010 GDP.

Country

GDP(trillions $)

10

5

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Notes for oil in Iraq video:




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B. Components of GDP

www.BEA.gov

As of the third quarter of 2011, the size of the US economy is ________________________.

Let¶s look at each component¶s share of GDP:

Consumption share =

Investment share =

Government share =

Export share =

Import share =




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C. Real vs Nominal GDP __________________ GDP = the production of goods and services valued at current prices

(the effects of inflation are included)

__________________ GDP = the production of goods and services valued at base year prices

(the effects of inflation are removed)

It is only meaningful to compare _________________ figures across time.2001Q2 2001Q3

US NGDP $10,128.9b $10,135.1bUS RGDP $9,905.9b $9,871.1b

2011 Q-III US GDP (in billions)

NGDP RGDP

How to calculate real and nominal GDP:

Ex: Suppose an economy produces only two goods.

Price of Q of Price of Q of year soda soda hotdog hotdog2005 $1 100 $2 502006 $2 150 $3 1002007 $3 200 $4 150

Table 1.1.5 and Table 1.1.6

from the BEA.




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Nominal GDP Calculations:Use __________________year quantities and _________________ year prices.

2005:

2006:

2007:

Real GDP Calculations:Use _______________ year quantities and _________________ prices.

Suppose that the base year is 2005.

2005:

2006:

2007:

D. The GDP deflator

The GDP deflator is a measure of the _____________________________.

GDP deflator = NGDP x 100RGDP

Deflators from our soda/popcorn example:

2005:

2006:

2007:

Note: in the base year the GDP deflator is equal to _________

US Nominal GDP (billions)

US Real GDP (billions)

Let¶s calculate the actual GDP deflator for the following years.2000: 2001: 2002:

2003: 2004: 2005:




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E. Economic Growth

Economic growth is measured by the percent change in RGDP over a time period.%RGDP = RGDP2 ± RGDP1 x 100

RGDP1

2005 RGDP 2006 RGDP

China: ¥7,898.742 b ¥8,743.908 bUS: $11,048.625 b $11,413.625 b

Calculate each country¶s growth rate from 2005 to 2006.

Economic growth can be ______________________.

US Economic Growth rates: Table 1.1.1 Percent Change in RGDP




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F. GDP and Well-being

GDP is a __________________________ of the well-being of people in a particular nation.

It __________________ many important factors in the quality of life like leisure, health, education, theenvironment, informal markets, and home production.

However, higher GDP is ___________________ with higher levels of these other factors.

________________________ is another measure of well-being. It captures the income of the average person in the economy.

GDP per capita = GDP / population

2010 population 2010 GDP

Rank Country Population

1 China 1,341,710,000

2 India 1,192,660,000


4 Indonesia 237,556,363

5 Brazil 190,732,694

6 Pakistan 171,552,000

7 Nigeria 158,259,000

8 Bangladesh 149,856,000

9 Russia 141,927,297

10 Japan 127,390,000

For each of the countries below, calculate GDP per capita.

Country PopulationGDP

(millions of USD) GDP Per Capita

Russia 141,927,297 1,476,912

United States 311,876,000 14,624,184

China 1,341,710,000 5,745,133

Make some observations about your calculations.

Rank Country

GDP (millions of

USD)


2 China 5,745,1333 Japan 5,390,897

4 Germany 3,305,898

5 France 2,555,439

6 United Kingdom 2,258,565

7 Italy 2,036,687

8 Brazil 2,023,528

9 Canada 1,563,664

10 Russia 1,476,912




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Snapshot of the Global Economy (2007)

GNI population GNI per

(trillions $) (billions) capita ($)

World 52.6 6.6 7,958

Low income 0.7 1.3 578Lower middle income 6.5 3.4 1,887

Upper middle income 5.7 0.8 6,987

High income 39.7 1.1 37,566

Low & middle income 13.0 5.6 2,337

East Asia & Pacific 2.7 0.4 2,180

Europe & Central Asia 2.7 0.4 6,051

Latin America & Caribbean 3.1 0.6 5,540

Middle East & North Africa 0.9 0.3 2,794

South Asia 1.3 1.5 880

Sub-Saharan Africa 0.8 0.8 952

US 13.9 0.3 46,040

EMU 11.6 0.3 36,329

LDCs 0.4 0.8 496

___________________________________________________________________________________ Summary:Because every transaction has a buyer and a seller, the total expenditure in the economy must equal thetotal income in the economy.

Gross domestic product (GDP) is the market value of all final goods and services produced within a

country in a given period of time.

GDP is divided among four components of expenditure: consumption, investment, government purchases, and net exports.

Nominal GDP uses current prices to value the economy¶s production of goods and services.

Real GDP uses constant base-year prices to value the economy¶s production of goods and services.

The GDP deflator measures the level of prices in the economy.

Economic growth is measured using the change in Real GDP.

GDP is a good measure of economic well-being because people prefer higher incomes to lower incomes.

But it is not a perfect measure of well-being.

LectureNotes_ch05_GDP

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