Unit 2- GDP

• GDP: Market value of all final goods and services produced within a nation in a given year.
• What's not included in GDP
1. Intermediate goods-something that needs further processing.
2. Used/second-hand goods
3. Purely financial transactions (stocks/bonds)
4. Illegal activities (Ola-drugs)
5. Unreported business activity (Ex. Tips)
6. Non-market transactions (volunteering, babysitting)
7. Transfer payments (scholarships, welfare payments, social security)
• What's included in GDP
1. C-Personal Consumption Expenditures (65%)
2. Ig-Gross Private Domestic Investment (17%)
• Factory equipment maintenance
• New factory equipment
• Construction of housing
• Unsold inventory of products built in a year.
1. G-Government Spending (20%)
2. Net exports (Xn)- Exports-imports (-2%)
3. GNP- Gross National Product of all final goods and services by citizens of that country on its land or foreign land.
• 

• Two Ways to Calculate GDP
• Expenditure Approach: Add up all the spending on final goods and services produced in a given year.
• GDP= C + Ig + G + Xn (Exports-imports)
• Most preferred method
• Income Approach: Adds up all the income that resulted from selling all final goods and services produced in a given year.
• GDP= Wages + Rent + Interest + Profit + Statistical adjustments (indirect business taxes, depreciation, and net foreign factor payment)
• Compensation of Employees: Wages, salaries, pensions, insurances, health, and welfare.
• Rent: Income received by property owners.
• Received from tenant to landlord.
• Interest: Money paid by private businesses to the suppliers of loans.
• Mortgage, stocks/bonds
• Corporate Projects: The income of the corporation's stockholders.
• Dividends, corporate income taxes
• Proprietor's Income: Income that comes from entrepreneurs and partners.