GDP Overview and Components

Study Notes

GDP stands for Gross Domestic Product
It's a measure of a country's economic output
It reflects the total value of all final goods and services produced within a country's borders in a specific time period, usually a year.
GDP is expressed in a currency, like the U.S. dollar.
It represents a nation's overall economic performance, including its economic well-being and growth.

Consumption: This includes goods (groceries, clothes, iPods) and services (haircuts, oil changes) bought by households.
Investment: This covers fixed assets for production (e.g., new factories, machinery), new homes, and changes in inventory.
Government Spending: This involves expenditures by local, state, and federal governments, like funding for roads, schools, and public services.
Net Exports: This is calculated by subtracting a country's imports from its exports.

Intermediate Goods: These are goods used in the production of other goods.
Used Goods: They do not count toward current production.
Underground Production (Black Market): Unrecorded economic activity is excluded.
Financial Transactions: Financial exchanges themselves aren't part of GDP.
Household Production: Activities inside the home (e.g., cooking, cleaning) aren't typically recorded.
Transfer Payments: Government payments (e.g., welfare) are not counted as part of current production.

Nominal GDP: GDP measured in current prices. It does not account for inflation.
Real GDP: GDP adjusted for inflation. This is used to compare economic growth over time.
Comparing real GDP over several years shows actual output increases.