14 GDP Part II

# 14 GDP Part II - GDP Readings Zagorsky Chapter 7 Click to...

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Introduction When we look to summarize how a country is doing, the key number is GDP and the change in GDP. GDP measures the size of the economy and tells us, “How much does a country produce?” Changes in GDP tells us how fast the economy is growing or shrinking.
Calculating GDP

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GDP Calculated by Tracking Spending GDP ( Y ) is mathematically computed as the sum of the following: Consumption (C) Investment (I) Government Purchases (G) Exports (X) Imports (M) Y = C + I + G + X - M
THE COMPONENTS OF GDP Consumption (C) : The spending by households on goods and services, with the exception of purchases of new housing. Called formally “Personal Consumption Expenditures” Investment (I) : The spending on capital equipment, inventories, and structures, including new housing. Called formally “Gross Private Domestic Investment”

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THE COMPONENTS OF GDP Government Purchases (G) : The spending on goods and services by local, state, and federal governments. Does not include transfer payments because they are not made in exchange for currently produced goods or services. Called formally “Government Consumption Expenditures and Gross Investment” Net Exports : Exports (X) minus imports (M) also called (NX).
Quick Question Think about all the purchases you made, or had on your behalf, in the past 24 hours. How much did you increase GDP? Write Down. How much was C? How much was I? How much was G? How much was M? How much was X?

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How Big Is USA GDP? GDP is currently about \$14.6 Trillion C - \$10.4 Trillion I - \$1.8 Trillion G - \$3.0 Trillion X - \$1.8 Trillion M - \$2.4 Trillion GDP \$14.6 = \$10.4 + \$1.8 + \$3.0 + \$1.8 - \$2.4
2nd Way of Computing GDP On the previous slides we calculated GDP as the value of the spending in each major sector (C+I+G+NX). Another way to calculate GDP is to look at income . Why income? Because the money received when output is sold must go to someone as income.

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Alternative Way II GDP = Compensation of employees + Proprietors Incomes + Rental Income + Corporate Profits + Interest (net) + Taxes + Depreciation / Capital Consump.
Alternative Numbers GDP and these components currently total about \$14.6 Trillion. Compensation Employees \$8.0 Trillion Proprietor Income \$1.1 Trillion Rental Income \$0.3 Trillion Corporate Profits \$1.3 Trillion Interest (net) \$0.7 Trillion Taxes \$1.0 Trillion \$2.2 Trillion \$14.6 Trillion

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How do we measure how fast a country is growing? Growth Rate = (New GDP Value - Old GDP Value) Old GDP Value In 2007 GDP in the USA was about \$13.8 trillion In 2008 GDP in the USA was about \$14.3 trillion. Growth was
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## This note was uploaded on 04/17/2011 for the course EC 102 taught by Professor Zagorsky during the Spring '08 term at BU.

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14 GDP Part II - GDP Readings Zagorsky Chapter 7 Click to...

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