January 27, 2017

Gross Domestic Product & Gross National Product 

GDP (Gross Domestic Product): The total value of all final goods and services produced within a country's borders in a given year.

• Includes all production or income earned within the US by US and foreign producers. It excludes production outside of the US, even by Americans. 

GNP (Gross National Product): The total value of all goods and services produced by Americans in a given year. 

• Includes production or income earned by Americans anywhere in the world. Excludes production of non-Americans even in the United States. 

                            GDP Formula: C + Ig + G + Xn (exports-imports)

Included in GDP:

• C= Consumption
• Purchase of final goods and services
• 67% of the economy
• Ig= Gross Private Domestic Investment
• Reconstruction of New Housing
• New Factory Equipment
• Factory Equipment Maintenance 
• Unsold Inventory of Products Built in a Year
• 17% of the economy
• G= Government Spending 
• School Busses
• Highway
• Guns
• 18% of the economy
• Xn= Net Exports
• EXPORTS - IMPORTS
• -2% of the economy because majority is imports

NOT Included in GDP:

• Intermediate Goods (Inputs) 
• Ex: Lettuce, Cheese in Sandwich 
• Trying to Avoid Double or Multiple Counting 
• Used or Second Hand Goods 
• Trying to Avoid Double or Multiple Counting 
• Unreported Business Activities
• Ex: Tips
• Stocks and Bonds
• Non-Market Activity
• Ex: Volunteer, Babysitting Without Pay, Work for Self
• Illegal Activity
• Ex: Underground or Black Market 
• Gifts or Transfer Payments
• Ex: Scholarships, Social Security, Unemployment, Giving Someone Money