A a consumer buying a newly built house b an airline

A. a consumer buying a newly built house
B. an airline buying a new plane
C. a clothing store adding to its goods to be
sold
D. a car company saving for a big purchase,
like a new factory

Monday Review
Question : Which of the following would be the
best example of capital?
A. shoes that a shoe store keeps in order to
sell to its customers
B. computers that GM uses to run its robots
that build cars
C. a computer owned by a household and
used by its children in schoolwork
D. leather used by a shoe company that goes
into the shoes it manufactures

GDP: Terms
Some key terms (so far) for GDP
capital (K)
investment (I)
intermediate vs. final good

GDP: Details
Question : Capital goods are a final good and
their production is counted in GDP.
A. yes (I’m sure)
B. yes (I think so)
C. not sure
D. no (I think)
E. no (I’m sure)

GDP by Production
def : When measured by production, GDP for a
nation’s economy is the market value of all
final goods and services produced
domestically in that year .
U.S. 2017 II: $19.2 trillion

GDP: Details
Question : How many of the following things
would be included in GDP when measured by
production?
- a used car that was just sold
- me getting my hair cut
- prostitution
- a machine made for Boeing to
manufacture jetliners
- SpaceX produces a rocket for NASA
- cement that is poured for a new building
- Oracle software (U.S. made) sold in U.K.
A. 1 B. 2 C. 3 D. 4 E. 5

GDP by Expenditures
(flip side of production)
- consumption (C): purchases by
households
- investment (I): as before
- government purchases (G)
• smaller than govt. “expenditures”
• govt. expenditures =
purchases + transfers
+ interest payments (on its debt)
- net exports (NX): exports – imports
Shares of total GDP in the U.S. (BEA)
C: 69% I: 16% G: 18% NX: -3%
GDP = C + I + G + NX; $19.2 trillion in 2017 II

GDP by Income (“Gross Domestic Income”)
Question : Let’s look at one economic
transaction – you buy $10 of fresh corn
from a farmer at a roadside stand. Consider
- income (or revenue) the farmer receives
- value of the produced corn
- dollars you spent
How many of these are equal
to each other in value?
A. 0 B. 2 C. 3
D. not clear on what is being asked
For the entire economy, we can measure
GDP by production or expenditures &
“Gross Domestic Income” is equal to them.
A key point of the “circular flow.”

Timeout
Survey : It is critical to have good notes – this
means more than what is on the slides and in
particular it includes the reasoning behind the
answers to the clicker questions. I ___ for
this.
A. could use more time
B. have had sufficient time
C. have had more time than I needed

One Use of GDP
In per capita terms, economists use it to
measure well-being (in spite of limitations)
ex : U.S.: $57,300
Australia: $48,800
China: $14,600 (~ U.S. in 1942)
Haiti: $1,800 (~ U.S. in 1800)

End of Part A: What is GDP?
When measured by production , GDP for
a nation’s economy is the market value
of all final goods and services produced
domestically in that year.