Basic Macroeconomics (Group 4) GDP and Real GDP PDF

MACROECONOMIC MEASUREMENT: GDP AND REAL GDP Group 4 TOPICS TO BE DISCUSSED: Interpret the value of GDP Distinguish the different types of markets Differentiate nominal from real GDP Evaluate the value of GDP using expenditure and income approach Compare the value added approach and...

MACROECONOMIC MEASUREMENT: GDP AND REAL GDP Group 4 TOPICS TO BE DISCUSSED: Interpret the value of GDP Distinguish the different types of markets Differentiate nominal from real GDP Evaluate the value of GDP using expenditure and income approach Compare the value added approach and final value of goods and services produced  INFO ABOUT GDP In macroeconomics, the most common way to assess the overall health of an economy is by looking at Gross Domestic Product (GDP). The term "gross" means total, "domestic" refers to within a country's borders, and "product" signifies the value of all produced goods and services. However, this definition is somewhat simplified, so let’s explore a more detailed explanation. INFO ABOUT GDP Gross Domestic Product represents the total value of all final goods and services produced within a country's borders in a given year. It's important to focus on “final” and “in a given year.”  BACKGROUND ABOUT GDP Final Goods: These are also known as “finished goods.” A final good is one that will not be used again as part of another good. For instance, if a baker buys flour, sugar, and butter, these are not considered as final goods because they are used to make a cake. The cake, being the end product, is a final good since it is bought and consumed by the customer. Capital goods, are goods that are being used to make other goods but are still considered as final goods. Such as chainsaw for wood cutting or combine harvester used to harvest cultivated seeds.  BACKGROUND ABOUT GDP In a given year: GDP only includes goods and services produced in the current year. Thus, if an old car is sold this year, it doesn’t count toward GDP since it wasn’t produced this year. Only new cars sold within the year are included in GDP.  BACKGROUND ABOUT GDP Within a country’s borders: GDP measures production within a country’s borders. For example, a shirt made in Vietnam and sold in the U.S. contributes to Vietnam’s GDP, not the U.S.’s. Conversely, a movie produced in the U.S. and shown in Vietnam adds to U.S. GDP. INTERPRET THE VALUE OF GDP The value of GDP indicates the overall economic activity and health of a country. A high GDP suggests a strong economy, while a low GDP can indicate economic problems. Changes in GDP help assess growth, living standards, and economic performance.  To summarize, the value of GDP reflects the total economic output of a country, providing a snapshot of its economic health. This can point to improved living standards and business confidence. While, a decline in GDP often signals economic contraction or trouble, such as reduced production or lower consumer demand, which can lead to lower employment and potential economic instability.  DISTINGUISH THE DIFFERENT TYPES OF MARKET GOODS AND MONEY LABOR MARKET SERVICE Labor market is the MARKET Goods and service Money market is a financial platform for individuals market involves an market where short-term who seeks employment. exchange of money to borrowing and lending This market enables occurs. financial procure a service or individuals to acquire instruments are used to goods. Both of them are jobs. Which employers trade like certificate of driven by the supply and then pay for their deposit, treasury bills and demand dynamics. expertise. commercial paper. NOMINAL REAL GDP GDP Nominal GDP represents Real GDP adjusts for the value of goods and inflation by using base year prices, allowing it to services produced at measure the true growth in current prices, reflecting the quantity of goods and both production and services produced, making price changes, but it it a more reliable indicator doesn't account for of economic performance inflation or long-term over time compared to comparisons. nominal GDP.  Value Added Approach: Calculates GDP by summing the value added at each stage of production. It focuses on the incremental contribution of each producer to avoid double counting. Final Value of Goods and Services Produced (Expenditure Approach): Calculates GDP by summing total spending on final goods and services. It includes consumption, investment, government spending, and net exports, ensuring only final transactions are counted. Key Difference: The value added approach tracks production contributions, while the expenditure approach tracks total spending on final goods and services. Both methods should produce the same GDP figure.  CALCULATING GDP Expenditure Approach Income Approach EXPENDITURE APPROACH how much people, businesses, and the government are spending GDP = C + I + G + (X − M) Consumption Imports Investment Government Spending Exports  INCOME APPROACH based on the total income of people and businesses GDP = W + I + R + P + (T − S) Wages Taxes Subsidies Interest Rent Profits  ARE THEY ALWAYS GOING TO BE THE SAME? Statistical Discrepancies Depreciation Taxes and Subsidies Informal Economy THANK YOU