Gross Domestic Product

11 Key excerpts on "Gross Domestic Product"

• 

  eBook - ePub

  The Trader's Guide to the Euro Area

  Economic Indicators, the ECB and the Euro Crisis

  • David J. Powell(Author)
  • 2013(Publication Date)
  • Bloomberg Press

    (Publisher)

  Chapter 2

  Gross Domestic Product

  GDP is the most commonly cited comprehensive indicator of economic activity. It is the total market value of the goods and services produced within a nation or, in the case of the euro area, a monetary union. It can also be described as the total income of the geographic area.

  The first word of the term – gross – indicates that depreciation of equipment and factories used in the production process is excluded from the calculation.1 For example, the decline in the value of an aging computer is ignored in this measure of national output.

  The second word of the term – domestic – indicates the inclusion of all production within the region’s borders irrespective of the country of origin of the producer.2 For example, if a Mercedes is produced in a plant constructed by the German company in the U.S., the car is included in U.S. GDP and excluded from German GDP. If the car is produced in Germany and shipped to the U.S., it is included in German GDP and excluded from U.S. GDP.

  Three methods of measuring GDP exist: expenditure, output and income. In theory, all three methods should produce the same figure. In practice, measurement problems normally lead to discrepancies.

  The Expenditure Approach

  The expenditure approach is based on the final or end use of the produced goods and services. This method has historically been used most frequently by national statistical agencies. In a report from 1996 of 18 member countries, the OECD calculated that all of them reported GDP using the expenditure approach. Sixteen of them also tallied the figure using the output method and 10 used the income approach as well.3 These numbers have since risen to 18, 17 and 16, respectively.4

  The accounting identity used to calculate GDP under the expenditure approach states that GDP equals consumption plus investment plus net exports. Consumption is broken down into private consumption and government consumption and investment consists of gross fixed capital investment and the change in inventories. The sum of consumption and investment equals domestic demand. Net exports equals exports minus imports.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Applied Intermediate Macroeconomics

  • Kevin D. Hoover(Author)
  • 2011(Publication Date)
  • Cambridge University Press

    (Publisher)

  But how can we add up such disparate products as shoes, ships, seal-ing wax, cabbages, and concert tickets? This is, of course, an old problem known to every schoolchild from arithmetic class. We must find a common unit. So, even though the wealth of the nation does not consist of money, the money value of each product provides the common measure that permits us to add up disparate products. (As we saw in Chapter 2, section 2.4, even after we have expressed GDP in dollars, we have to account for the changing value of the dollar itself. In Chapter 8 we shall consider how to compare the GDPs of different countries that use different monies.) At the beginning of Chapter 2 we quoted the definition of gross domes-tic product used by the U.S. Commerce Department’s Bureau of Economic Analysis: Gross Domestic Product is “the market value of all the final goods and services pro-duced by labor and property located” within the borders of a country within a definite period . We did not probe too deeply into this definition, although we did notice that virtually every element of the definition hid some subtlety. In this chapter we will explore some of those subtleties. Exactly what does, and what should, the national-income accountant count? How accurate are the national-income data? 71 72 Understanding Gross Domestic Product 3.1 What Is a Final Product? 3.1.1 Quid Pro Quo We begin with the concept of GDP itself. If GDP is the value of the “final goods and services” (or final products), we should ask, what do “final” and “product” mean in this context? Start with “product.” Earlier economists, such as Adam Smith (1723–1790), whose Wealth of Nations is the starting point of modern economics, argued that only tangible goods had real eco-nomic value: bread and beer were products, but the performance of a play or the lecture of a professor was not.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Statistical Handbook on Poverty in the Developing World

  • Chandrika Kaul, Valerie Tomaselli-Moschovitis, Chandrika Kaul, Valerie Tomaselli-Moschovitis(Authors)
  • 1999(Publication Date)
  • Greenwood

    (Publisher)

  It shows the economic capacity of a country. It is a complex indicator, determined by various factors in- cluding the physical wealth (land, minerals, forests, etc.), human resources (employees, employers, and their skill levels), and capital development (internal infrastructure, production-related machinery, etc.). Given the factors that go into the GDP, it is easy to see why many poor coun- tries tally low GDP statistics: with limited and/or under- performing physical, human, and capital resources, a capacity for healthy economic development will be lim- ited as well. GDP growth rates help to measure the progress of economic development over time. Growth in GDP for all countries in the designated income categories shows that, on the whole, economic capacity is on the rise. Clearly, as summary totals, the growth rates only aver- age out the change in GDP; therefore, the upward trends can mask the economic performance of individual coun- tries (Cl.l). The sectoral breakdown on GDP is a measure of the components of a country or group of countries' economic output. Least-developed countries often have a higher share of their GDP rooted in agriculture than higher- income or more-developed countries do. Analyzing the sectoral breakdown helps analysts to understand, in raw terms, what drives economic activity and growth (Cl .2). Gross Domestic Product per Capita: GDP per Capita is the GDP of a country divided by its popula- tion; it helps to relate a country's economic output to the size of its population and therefore acts as an important qualifier to the cruder GDP measurement. Consequently, it is a more valuable tool in analyzing the economic well- being of a country: it can tell us whether a country's output is in proportion to its population (C2.1-C2.6). Consumer Price Index (CPI): CPI represents the volatility of prices experienced by the population within a country.

  Sign up to read

  Learn more about book
• 

  No longer available |Learn more

  Textbook of Macroeconomics

  • (Author)
  • 2014(Publication Date)
  • White Word Publications

    (Publisher)

  ____________________ WORLD TECHNOLOGIES ____________________ Chapter-3 Gross Domestic Product CIA World Factbook 2008 figures of total nominal GDP (bottom) compared to PPP-adjusted GDP (top) ____________________ WORLD TECHNOLOGIES ____________________ Countries by 2008 GDP (nominal) per capita (IMF, October 2008 estimate) GDP (PPP) per capita Gross Domestic Product ( GDP ) refers to the market value of all final goods and services produced within a country in a given period. It is often considered an indicator of a country's standard of living. Gross Domestic Product is related to national accounts, a subject in macroeconomics. History GDP was first developed by Simon Kuznets for a US Congress report in 1934, who immediately said not to use it as a measure for welfare. ____________________ WORLD TECHNOLOGIES ____________________ Determining GDP GDP can be determined in three ways, all of which should, in principle, give the same result. They are the product (or output) approach, the income approach, and the expenditure approach. The most direct of the three is the product approach, which sums the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of the product must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things. The income approach works on the principle that the incomes of the productive factors (producers, colloquially) must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes. Example: the expenditure method: GDP = private consumption + gross investment + government spending + (exports − imports) , or Note: Gross means that GDP measures production regardless of the various uses to which that production can be put. Production can be used for immediate consumption, for investment in new fixed assets or inventories, or for replacing depreciated fixed assets.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Principles of Macroeconomics 3e

  • David Shapiro, Daniel MacDonald, Steven A. Greenlaw(Authors)
  • 2022(Publication Date)
  • Openstax

    (Publisher)

  This is why the terms GDP and national income are sometimes used interchangeably. The total value of a nation’s output is equal to the total value of a nation’s income. The Problem of Double Counting We define GDP as the current value of all final goods and services produced in a nation in a year. What are final goods? They are goods at the furthest stage of production at the end of a year. Statisticians who calculate GDP must avoid the mistake of double counting, in which they count output more than once as it travels through the production stages. For example, imagine what would happen if government statisticians first counted the value of tires that a tire manufacturer produces, and then counted the value of a new truck that an automaker sold that contains those tires. In this example, the statisticians would have counted the value of the tires twice- because the truck's price includes the value of the tires. To avoid this problem, which would overstate the size of the economy considerably, government statisticians count just the value of final goods and services in the chain of production that are sold for consumption, investment, government, and trade purposes. Statisticians exclude intermediate goods, which are goods that go into producing other goods, from GDP calculations. From the example above, they will only count the Ford truck's value. The value of what businesses provide to other businesses is captured in the final products at the end of the production chain. The concept of GDP is fairly straightforward: it is just the dollar value of all final goods and services produced in the economy in a year. In our decentralized, market-oriented economy, actually calculating the more than $21 trillion-dollar U.S. GDP—along with how it is changing every few months—is a full-time job for a brigade of government statisticians. 6.1 • Measuring the Size of the Economy: Gross Domestic Product 145

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Principles of Economics 3e

  • Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
  • 2022(Publication Date)
  • Openstax

    (Publisher)

  This is why the terms GDP and national income are sometimes used interchangeably. The total value of a nation’s output is equal to the total value of a nation’s income. The Problem of Double Counting We define GDP as the current value of all final goods and services produced in a nation in a year. What are final goods? They are goods at the furthest stage of production at the end of a year. Statisticians who calculate GDP must avoid the mistake of double counting, in which they count output more than once as it travels through the production stages. For example, imagine what would happen if government statisticians first counted the value of tires that a tire manufacturer produces, and then counted the value of a new truck that an automaker sold that contains those tires. In this example, the statisticians would have counted the value of the tires twice- because the truck's price includes the value of the tires. To avoid this problem, which would overstate the size of the economy considerably, government statisticians count just the value of final goods and services in the chain of production that are sold for consumption, investment, government, and trade purposes. Statisticians exclude intermediate goods, which are goods that go into producing other goods, from GDP calculations. From the example above, they will only count the Ford truck's value. The value of what businesses provide to other businesses is captured in the final products at the end of the production chain. The concept of GDP is fairly straightforward: it is just the dollar value of all final goods and services produced in the economy in a year. In our decentralized, market-oriented economy, actually calculating the more than $21 trillion-dollar U.S. GDP—along with how it is changing every few months—is a full-time job for a brigade of government statisticians. 19.1 • Measuring the Size of the Economy: Gross Domestic Product 457

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Macroeconomics For Dummies, UK Edition

  • Manzur Rashid, Peter Antonioni(Authors)
  • 2015(Publication Date)
  • For Dummies

    (Publisher)

  Part II The Solow model of economic growth is a benchmark model of macroeconomics taught throughout the world. Check out the free article about its lessons at www.dummies.com/extras/macroeconomicsuk . Measuring the Things that Matter © John Wiley & Sons In this part . . . ✓ ✓ Get a firm grip on Gross Domestic Product (GDP) and every-thing that goes into calculating it. ✓ ✓ Discover why so many people worry about inflation and understand why a little bit of inflation may be a good thing. ✓ ✓ See how unemployment affects an economy, understand how it’s measured and find out what causes unemployment levels to change. Chapter 4 Totting up a Country’s Economic Activity: Gross Domestic Product In This Chapter ▶ ▶ Understanding the importance of GDP ▶ ▶ Seeing what determines wages in an economy ▶ ▶ Discovering how to calculate GDP ▶ ▶ Using GDP to measure living standards M acroeconomists love talking about Gross Domestic Product (GDP for short) – as much as sci‐fi fans love discussing Star Trek, TV chefs the benefits of organic turnips and MPs how few expenses they can claim now and why it’s soooo unfair! When economists examine a country’s economy, GDP is probably the first thing they look at – and for good reason. Gross Domestic Product provides a convenient snapshot of the total amount of economic activity taking place in a country. More precisely, it reveals the value of everything an economy produces in one year. Here’s a simple way to view GDP. Imagine that every year in the UK Mary Berry bakes a massive Victoria sponge, dripping with strawberry jam (no drooling!). It’s delicious, of course, and everyone wants a piece. Now think of the entire cake as the UK’s GDP and each person’s slice as their personal income that year. Economists dream about two objectives for the cake, er, for GDP: ▶ ✓ Efficiency: They want the economy to be as big and tasty as possible. ▶ ✓ Equity: They’d like everyone to get a similarly sized slice.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  The Trader's Guide to Key Economic Indicators

  With New Chapters on Commodities and Fixed-Income Indicators

  • Richard Yamarone(Author)
  • 2010(Publication Date)
  • Bloomberg Press

    (Publisher)

  current pace because the quarterly figure excludes inventories that have been produced in previous quarters. Many times economists will compare the growth rates of GDP with those of final sales to determine whether economic growth is being driven by new production or by the consumption of goods that were previously produced and stored as inventories.

  Gross domestic purchases measures all the goods U.S. residents have bought, no matter where the goods were produced. This figure is obtained by subtracting net exports from GDP. There is indeed a difference between GDP and gross domestic purchases. GDP is a measure of domestically produced goods and services, whereas gross domestic purchases is a measure of all the goods domestically purchased. Strong quarterly increases in gross domestic purchases generally imply solid demand by U.S. consumers, as only those purchases of domestic goods are calculated.

  Final sales to domestic purchasers is the level of gross domestic purchases less the change in private inventories. It depicts the desire of Americans, both households and businesses, to spend, no matter where the goods or services are produced. Some economists consider it a good indicator of overall economic well-being. Slumping final sales to domestic purchasers suggests that U.S. consumers are tapped out.

  Economists keep track of the year-over-year percentage change in final sales to domestic purchasers because of this measure’s excellent record of foretelling periods of softer economic growth. As the chart in

  FIGURE 1.12

  illustrates, each of the four recessions since 1980 was preceded by about a three-quarter-long decline in the year-over-year growth rate of final sales to domestic purchasers.

  Figure 1.12 Final Sales to Domestic Purchasers

  Sources: U.S. Department of Commerce, Bureau of Economic Analysis; National Bureau of Economic Research

  CORPORATE PROFITS

  Market participants don’t generally pay as much attention to the income side as to the expenditure side of GDP. That isn’t to say the trends in wages and salaries aren’t important to economists or to analysts who cover retail issues. What could be more telling about the future pace of spending, after all, than the amount of income earned by would-be consumers? It’s just that the trends of the expenditure side are accepted as being more accurate, because they aren’t subject to inventory and capital consumption value adjustments, as the income-determined data are. Still, some income-side components can give valuable insights into economic trends. Among the most important of these are the measures of corporate profits.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  The Trader's Guide to Key Economic Indicators

  • Richard Yamarone(Author)
  • 2012(Publication Date)
  • Bloomberg Press

    (Publisher)

  Final sales of domestic product is a measure of the dollar value of goods produced in the United States in a particular period that are actually sold, rather than put into inventory. To calculate this figure, the BEA first computes the change in private inventories by comparing the current level of inventories with that of the previous period. This indicates how many goods have been added to businesses storage and thus how much of current production has remained unsold. This change in private inventories is then subtracted from GDP to give final sales. This is an important number, because it paints a more accurate picture than GDP of the current pace of spending in the economy. Economists say current pace because the quarterly figure excludes inventories that have been produced in previous quarters. Many times economists will compare the growth rates of GDP with those of final sales to determine whether economic growth is being driven by new production or by the consumption of goods that were previously produced and stored as inventories.

  Gross domestic purchases measures all the goods U.S. residents have bought, no matter where the goods were produced. This figure is obtained by subtracting net exports from GDP. There is indeed a difference between GDP and gross domestic purchases. GDP is a measure of domestically produced goods and services, whereas gross domestic purchases is a measure of all the goods domestically purchased. Strong quarterly increases in gross domestic purchases generally imply solid demand by U.S. consumers, as only those purchases of domestic goods are calculated.

  Final sales to domestic purchasers is the level of gross domestic purchases less the change in private inventories. It depicts the desire of Americans, both households and businesses, to spend, no matter where the goods or services are produced. Some economists consider it a good indicator of overall economic well-being. Slumping final sales to domestic purchasers suggests that U.S. consumers are tapped out.

  Economists keep track of the year-over-year percentage change in final sales to domestic purchasers because of this measure’s excellent record of foretelling periods of softer economic growth. As the chart in Exhibit 1.13 illustrates, each of the five recessions since 1980 was preceded by about a three-quarter-long decline in the year-over-year growth rate of final sales to domestic purchasers.

  EXHIBIT 1.13  Final Sales to Domestic Purchasers

  Source: U.S. Department of Commerce, Bureau of Economic Analysis; National Bureau of Economic Research

  Corporate Profits

  Market participants don’t generally pay as much attention to the income side as to the expenditure side of GDP. That isn’t to say the trends in wages and salaries aren’t important to economists or to analysts who cover retail issues. What could be more telling about the future pace of spending, after all, than the amount of income earned by would-be consumers? It’s just that the trends of the expenditure side are accepted as being more accurate, because they aren’t subject to inventory and capital consumption value adjustments, as the income-determined data are. Still, some income-side components can give valuable insights into economic trends. Among the most important of these are the measures of corporate profits.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Spanish Economic Growth, 1850–2015

  • Leandro Prados de la Escosura(Author)
  • 2017(Publication Date)
  • Springer Open

    (Publisher)

  7 Measuring GDP, 1850 – 1958: Demand Side Measuring aggregate economic activity through the expenditure side represents adding up all fi nal products or sales to fi nal demand. Ideally, each expenditure component should be computed with actual data from households, fi rms and public administration. Unfortunately, lack of direct evidence renders such a task impossible and the so-called com-modity fl ows approach provides a second-best alternative. 1 This method uses output fi gures for agriculture and industry that are adjusted to include imports and to exclude exports in order to derive estimates of consumption and investment. An implication is that the GDP output and expenditure estimates are not independent from each other. I will succinctly describe the procedures and sources used to derive estimates for private and public consumption of goods and services, domestic investment and net exports of goods and services. In all cases, except for net exports of goods and services, the same method employed in the output approach to obtain GDP levels will be followed. That is, in order to compute annual nominal GDP, the level for each expenditure component in 1958 was backcasted with the yearly variations of Laspeyres quantity and Paasche price indices and the resulting series added up. For investment, private consumption and gross domestic © The Author(s) 2017 L. Prados de la Escosura, Spanish Economic Growth, 1850 – 2015 , Palgrave Studies in Economic History, DOI 10.1007/978-3-319-58042-5_7 111 expenditure quantity indices at 1913, 1929 and 1958 relative prices were constructed and, then, a single index for each demand component was obtained by splicing the three volume indices using a variable weighted geometric average. A volume index of real GDP results from adding up its component indices with weights from 1958 national accounts. A word of warning is necessary. GDP estimates from the expenditure and output sides are not coincidental.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  The Mystery of Wealth

  Capitalism. Democracy. Rule of Law

  • Dennis Ridley(Author)
  • 2020(Publication Date)
  • Sciendo

    (Publisher)

  Before we proceed, we invoke the scientific principle that places this research in the category of economic science. That is, we break down the process by which per capita real Gross Domestic Product adjusted for purchasing power parity ( G ) is generated into its elementary components, study the effects of each then reconstruct G through their interaction and summation. G equates to standard of living. Precise definitions are summarized in the nomenclature in Appendix AA. In particular, because of the lack of definition of the term ‘capitalism,’ we differentiate between capitalist, capitalism and the company. In prior research these three elements were often referred to jointly as capitalism. There exist sentiments that capitalists are people who become rich at the expense of the poor. If our findings are to be acceptable as beneficial to ending poverty, the poor must recognize that all rational human beings are capitalists, and that goods producing capitalism cannot function unless it serves its customers (Adam Smith,1776), who in turn are people. Furthermore, through the indefatigable entrepreneur, capitalism works continuously towards improving quality and reducing the cost of goods to make them affordable to everybody. The net result is continuous movement toward equality of consumption, thereby making income inequality far less relevant in practice. From this perspective, capitalism is a deal that the poor just cannot refuse. Note also that we define rule of law as the opposite of corruption (Goel, Mazhar and Nelson, 2016, Czap and Nur-tegin, 2012 ) and the enforcement of property rights and contracts. Less corruption should increase chances for the poor. 10.2478/9788395771361-006 69 A good place to start is to identify some countries that are diverse in almost all ways except that they have instituted C , D , and R , and also enjoy the benefit of high G . The concept of CDR as an index was introduced by Ridley (2016) and Ridley, Davis, Korovyakovskaya (2017).

  Sign up to read

  Learn more about book