Measuring GDP

Prof. Jeff Takle(857) 277-9050 | jeff.takle@gmail.com

Compare the U.S. to Others…• Who has the highest GDP?• Who has the highest GDP per capita?• What is misleading about graph on p93?

www.NationMaster.com

How Do You Calculate GDP? (expenditure approach)

• What’s included?▫ Only final goods and services▫ C + I + G + (X – M) = Aggregate expenditure = GDP

Consumption Investment Government expenditure Net exports

• What’s not included?▫ Intermediate goods▫ Supplies or resources currently being used (works in progress)▫ Secondhand goods & services▫ Black market goods & services▫ Do-It-Yourself goods & services

Okay, let’s do it…All data 2009 (in trillions)

USA China

Consumption (C)

9.4 1.1*

Investment (I) 2.3 2.0

Government (G)

2.8 1.4*

Exports (X) 1.0 1.2

Imports (M) 1.5 0.9

Calculate GDP 14.0 4.8Per capita $44,000 (#8) $2,033 (#131)

Plus Black Market 1%? 10%?Plus Do-It-Yourself 1%? 20%?Adjusted per capita $44,800 (#8) $2,720 (#116)

Is this included in a GDP calculation?

Pirated CDs, DVDs

Knock-off sunglasses

Is this included in a GDP calculation?

Is this included in a GDP calculation?

Other Weaknesses of GDP• Depreciation• Environmental costs• Stocks of natural

resources• Income disparity

All data 2009 (in trillions)

USA China

Consumption (C)

9.4 1.1*

Investment (I) 2.3 2.0

Government (G)

2.8 1.4*

Exports (X) 1.0 1.2

Imports (M) 1.5 0.9

Calculate GDP 14.0 4.8Per capita $44,000 (#8) $2,033 (#131)

Plus Black Market 1%? 10%?Plus Do-It-Yourself 1%? 20%?Adjusted per capita $44,800 (#8) $2,720 (#116)

How are the countries doing on these issues?

Consumer Price Index (CPI)• Measure of value for a typical “basket of goods”

▫ 100s of products, adjusted every few years• Using the CPI

▫ Pick a base year. That year’s CPI = 100▫ Real GDP = Nominal GDP / CPI or…▫ CPI = Nominal GDP / Real GDP …

Let’s Review

You Should Be Able to…1. Calculate the nominal GDP from its components (Consumption,

Investment, Government spending, Exports and Imports)2. Calculate the real GDP from a nominal GDP, given a Consumer Price

Index (CPI)3. Calculate the real GDP per capita4. Identify whether an economy appears to be growing or shrinking by

looking at the real GDP per capita5. Identify several areas of the economy not accounted for in GDP6. Given estimates for economic activity in those unaccounted-for areas,

calculate an adjusted real GDP per capita7. Compare the adjusted real GDP’s per capita for several countries8. Evaluate several leading, coincident, and lagging economic indicators

and determine if a country is in / headed for growth or a recession

Charts Just For Fun!