Gross Domestic Product (GDP) Basics
The measures were created in the 1930’s.
Until the 1990’s, Gross National Product was the federal measure of the economy.
Key terms to know:
“Gross” = Totals before adjustments (inflation’s effect)
“National Product” = Production owned by US companies
“Domestic Product” = Production in the US, even if foreign owned
GDP is officially measured in “quarters” of years:
Quarter 1 = Jan/Feb/Mar
Quarter 2 = Apr/May/June
Quarter 3 = July/Aug/Sep
Quarter 4 = Oct/Nov/Dec
The main form used is the “Expenditures” Approach: C + Ig + G + Xn
C = Personal Consumption in the economy: (67% of the Economy !!!)
The purchases of finished goods and services (but not houses)
Ig = Gross Private Business Investment monies:
Factory equipment maintenance,
New factory equipment,
Construction of housing,
Unsold inventory of products built in a year, but not sold that year
G = Government Spending:
Government purchases of products and services
Xn = Net Foreign Factor of Trade: Exports minus Imports
Exports = Dollars in, Imports = Dollars out
(Post WWII, Xn has usually been a negative number: Trade Deficit)
Items that DO NOT Count in GDP:
Used goods/Second-Hand goods
Gifts or “Transfers” (Private or Public) (note COLAs)
Stock/Equity/Securities purchases (places like the NYSE, NASDAQ)
Unreported business activities conducted in “cash” (unreported tips...)
Illegal activities (underground markets)
Financial transactions between banks and businesses
“Intermediate goods” (no double counting)
“Non market” activities like volunteer and family work
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