Economics
Measured GDP
Measured GDP refers to the total market value of all final goods and services produced within a country's borders in a specific time period. It is a key indicator of a country's economic health and is used to assess the size and growth of the economy. Measured GDP is often used to compare the economic performance of different countries.
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10 Key excerpts on "Measured GDP"
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2014(Publication Date)
- Openstax(Publisher)
Great Recession between 2008 and 2009. As noted before, if exports and imports are equal, foreign trade has no effect on total GDP. However, even if exports and imports are balanced overall, foreign trade might still have powerful effects on particular industries and workers by causing nations to shift workers and physical capital investment toward one industry rather than another. Based on these four components of demand, GDP can be measured as: GDP = Consumption + Investment + Government + Trade balance GDP = C + I + G + (X – M) Understanding how to measure GDP is important for analyzing connections in the macro economy and for thinking about macroeconomic policy tools. GDP Measured by What is Produced Everything that is purchased must be produced first. Table 6.2 breaks down what is produced into five categories: durable goods, nondurable goods, services, structures, and the change in inventories. Before going into detail about these categories, notice that total GDP measured according to what is produced is exactly the same as the GDP measured by looking at the five components of demand. Figure 6.5 provides a visual representation of this information. Components of GDP on the Supply Side (in trillions of dollars) Percentage of Total Goods Durable goods $2.9 16.7% Nondurable goods $2.3 13.2% Services $10.8 62.1% Structures $1.3 7.4% Change in inventories $0.1 0.6% Total GDP $17.4 100% Table 6.2 Components of U.S. GDP on the Production Side, 2014 (Source: http://bea.gov/iTable/ index_nipa.cfm) Figure 6.5 Percentage of Components of GDP on the Production Side Services make up over half of the production side components of GDP in the United States. Chapter 6 | The Macroeconomic Perspective 133 Since every market transaction must have both a buyer and a seller, GDP must be the same whether measured by what is demanded or by what is produced. Figure 6.6 shows these components of what is produced, expressed as a percentage of GDP, since 1960.
eBook - PDF- Bradley A. Hansen(Author)
- 2006(Publication Date)
- Greenwood(Publisher)
The process necessary to create chain weighted estimates is much more complicated than simply using the prices from a prior year, but the objective is the same, to remove the effects of inflation from our estimates of pro- duction and income. The phrase final goods reminds us that we need to be careful not to count goods twice. For example, if a furniture manufacturer buys $1,000 worth of lumber from a lumber mill and then produces tables that are sold for $2,000, we count only the $2,000 table, the final good, as part of GDP. If we count both the $1,000 of lumber and the $2,000 table, we are counting the lumber twice because its value is included in the value of the table. The phrase within a country distinguishes Gross Domestic Product from a similar measure called Gross National Product. Gross Domestic Product measures the production within a country regardless of who does it. Gross National Product measures the production of a country’s citizens regardless of where they are located. GDP is now the measure most commonly used in the United States, but you may still find some comparative data that refers Measuring the Performance of the American Economy 23 to GNP. It does not really make much difference which is used. For the United States, GNP is about 0.3 percent higher than GDP. The last part of the definition of GDP states that we are measuring the production over a specific period of time. The goods and services produced in a year do not exist at a single point in time, such as at the end of the year. Many services disappear as they are consumed. We say that GDP is a flow variable rather than a stock variable. The amount of water in a bathtub is stock variable, but a shower is measured by its flow, the amount of water that flows through it in a certain amount of time. Flow variables like GDP can be measured only over a specific period of time. The same sectors of the economy used in the circular flow diagram (Figure 1.4) are used in national income accounting.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
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 $18 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. What is Counted in GDP What is not included in GDP Consumption Intermediate goods Business investment Transfer payments and non-market activities Government spending on goods and services Used goods Net exports Illegal goods Table 19.3 Counting GDP Notice the items that are not counted into GDP, as Table 19.3 outlines. The sales of used goods are not included because they were produced in a previous year and are part of that year’s GDP. The entire underground economy of services paid “under the table” and illegal sales should be counted, but is not, because it is impossible to track these sales. In Friedrich Schneider's recent study of shadow economies, he estimated the underground economy in the United States to be 6.6% of GDP, or close to $2 trillion dollars in 2013 alone. Transfer payments, such as payment by the government to individuals, are not included, because they do not represent production. Also, production of some goods—such as home production as when you make your breakfast—is not counted because these goods are not sold in the marketplace. Visit this website (http://openstaxcollege.org/l/undergroundecon) to read about the “New Underground Economy.” 452 Chapter 19 | The Macroeconomic Perspective This OpenStax book is available for free at http://cnx.org/content/col12122/1.4 Other Ways to Measure the Economy Besides GDP, there are several different but closely related ways of measuring the size of the economy. We mentioned above that we can think of GDP as total production and as total purchases. We can also think of it as total income since anything one produces and sells yields income.
- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
or education all elements that affect people’s happiness, whether people buy or sell these elements in the market or not building used as residence, factory, office building, retail store, or for other purposes gap between exports and imports exists when a nation's imports exceed its exports and it calculates them as imports –exports exists when a nation's exports exceed its imports and it calculates them as exports – imports during the business cycle, the lowest point of output in a recession, before a recovery begins 132 Chapter 5 | The Macroeconomic Perspective This OpenStax book is available for free at http://cnx.org/content/col23729/1.3 KEY CONCEPTS AND SUMMARY 5.1 Measuring the Size of the Economy: Gross Domestic Product Economists generally express the size of a nation’s economy as its gross domestic product (GDP), which measures the value of the output of all goods and services produced within the country in a year. Economists measure GDP by taking the quantities of all goods and services produced, multiplying them by their prices, and summing the total. Since GDP measures what is bought and sold in the economy, we can measure it either by the sum of what is purchased in the economy or what is produced. We can divide demand into consumption, investment, government, exports, and imports. We can divide what is produced in the economy into durable goods, nondurable goods, services, structures, and inventories. To avoid double counting, GDP counts only final output of goods and services, not the production of intermediate goods or the value of labor in the chain of production. 5.2 Adjusting Nominal Values to Real Values The nominal value of an economic statistic is the commonly announced value. The real value is the value after adjusting for changes in inflation.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
or education all elements that affect people’s happiness, whether people buy or sell these elements in the market or not building used as residence, factory, office building, retail store, or for other purposes gap between exports and imports exists when a nation's imports exceed its exports and it calculates them as imports –exports exists when a nation's exports exceed its imports and it calculates them as exports – imports during the business cycle, the lowest point of output in a recession, before a recovery begins 158 Chapter 6 | The Macroeconomic Perspective This OpenStax book is available for free at http://cnx.org/content/col12190/1.4 KEY CONCEPTS AND SUMMARY 6.1 Measuring the Size of the Economy: Gross Domestic Product Economists generally express the size of a nation’s economy as its gross domestic product (GDP), which measures the value of the output of all goods and services produced within the country in a year. Economists measure GDP by taking the quantities of all goods and services produced, multiplying them by their prices, and summing the total. Since GDP measures what is bought and sold in the economy, we can measure it either by the sum of what is purchased in the economy or what is produced. We can divide demand into consumption, investment, government, exports, and imports. We can divide what is produced in the economy into durable goods, nondurable goods, services, structures, and inventories. To avoid double counting, GDP counts only final output of goods and services, not the production of intermediate goods or the value of labor in the chain of production. 6.2 Adjusting Nominal Values to Real Values The nominal value of an economic statistic is the commonly announced value. The real value is the value after adjusting for changes in inflation.
eBook - PDF- 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
eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
A detailed breakdown of the leading service industries would include healthcare, education, and legal and financial services. It has been decades since most of the U.S. economy involved making solid objects. Instead, the most common jobs in a modern economy involve a worker looking at pieces of paper or a computer screen; meeting with co-workers, customers, or suppliers; or making phone calls. Even within the overall category of goods, long-lasting durable goods like cars and refrigerators are about the same share of the economy as short-lived nondurable goods like food and clothing. The category of structures includes everything from homes, to office buildings, shopping malls, and factories. Inventories is a small category that refers to the goods that one business has produced but has not yet sold to consumers, and are still sitting in warehouses and on shelves. The amount of inventories sitting on shelves tends to decline if business is better than expected, or to rise if business is worse than expected. Another Way to Measure GDP: The National Income Approach GDP is a measure of what is produced in a nation. The primary way GDP is estimated is with the Expenditure Approach we discussed above, but there is another way. Everything a firm produces, when sold, becomes revenues to the firm. Businesses use revenues to pay their bills: Wages and salaries for labor, interest and dividends for capital, rent for land, profit to the entrepreneur, etc. So adding up all the income produced in a year provides a second way of measuring GDP. 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.
eBook - PDFEconomic Environment NQF4 SB
TVET FIRST
- D Bekker, M Richards, FHB Serfontein, A Smith(Authors)
- 2013(Publication Date)
- Macmillan(Publisher)
In the production of the final goods and services, intermediate goods are used. Intermediate goods are purchased to be used as inputs in producing other goods before they are sold to end users. Intermediate goods, such as crude oil used to manufacture petrol or flour for baking bread, are excluded when gross domestic product is calculated to avoid double counting since it is already included in the value of the final product. The value of the flour used in bread is already included in the market price we pay for bread. GDP measures the production of new goods and services. This is also called current production. This measurement is done for a specified period and is an annual flow, as it measures the value of goods and services produced over a year. A GDP of R60 billion implies that the South African economy produced R60 billion worth of final goods and services during a specific year. It does not include the value of any second hand goods that were produced in previous years. GDP also measures the goods and services produced inside the borders of a country by both the citizens and foreigners. It does not tell us by whom these goods and services were produced only that they were produced inside the borders of a country. This then reflects the level of economic activity that is taking place in the country. Measuring gross domestic product There are three ways in which the gross domestic product can be measured. From our circular flow model done earlier we know that total expenditure equals total production equals total income. It is therefore possible to measure gross domestic product by using the expenditure method, the production method or the income method. The expenditure method involves calculating the amount that has been spent on goods and services produced inside the borders of South Africa. If we know how much was spent on goods and services produced then we also know how much has been produced by the people and we also know how much income was earned.
eBook - PDF- Manzur Rashid, Peter Antonioni(Authors)
- 2015(Publication Date)
- For Dummies(Publisher)
In short, people tend to want to move to countries with high levels of capital and not many people, because their MPL will be high, assuring a relatively high real wage. 61 Chapter 4: Gross Domestic Product Calculating GDP: Assessing an Economy’s Health GDP is probably the single most useful statistic in appraising the health of an economy, so calculating it accurately is vitally important. Unfortunately, working out a country’s GDP is no simple matter. In this section we look at how GDP is calculated in the UK, why it’s not always 100 per cent accurate and also how to take into account improvement in the quality of goods. Other developed economies calculate GDP in a similar way. Introducing the basics In the UK, the Office for National Statistics (ONS) is responsible for calculat‑ ing GDP. It does so on a quarterly basis (every three months) by using three different ways of measuring GDP: ▶ ✓ Calculating total income: Basically adding up everyone’s income in the UK, including people’s wages from work and firms’ profits paid out as dividends to their owners/shareholders. This figure is estimated by using data on firms’ profits, individuals’ weekly earnings, employer surveys and data from the UK tax authority (HMRC). ▶ ✓ Calculating total output: Working out the value of all final goods that firms produce. This is done by surveying thousands of firms to obtain a detailed picture of exactly what they’re producing, in what quantities, using what inputs and for what price. To avoid double counting, only the value added by each firm is included. For this reason, this measure is often called gross value added (GVA). (See the section ‘Adding up total value added’ earlier in the chapter.) ▶ ✓ Calculating total expenditure: Adding up the amount of money that consumers, firms, the government and overseas buyers spend on final goods and services in an economy.
eBook - PDF- 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.
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