ECOMAN S26

Gross Domestic ProductGross National Product

FOUR Expenditure Components of GDP

1. Personal Consumption Expenditure (consumption or C)

The total amount of spending by consumer on durable goods, nondurable goods, and services in a given period of time.

THREE CATEGORIES (C)

i. Durable Goods - commodities that can be stored or inventoried, that last three years or more, such as automobiles, appliances, & furniture.

ii. Non-Durable Goods - commodities that last less than three years and may be consumed very quickly, such as gasoline, food, & clothing.

Iii. Services - non-commodity items, such as utilities, public transportation, education, medical care, & recreation.

2. Gross Private domestic investment

(investment or I)

The total amount of spending on non residential structures, equipment, and software; residential structure; and business inventories in a given period of time.

THREE CATEGORIES (I)

i. Nonresidential or business - fixed investments the spending on structures, equipment, and software that provide the industrial capacity to produce goods and services for all sectors of the economy.

ii. Residential fixed investments - the spending on newly constructed housing units, major alterations of and replacements to existing residential structure and broker’s commissions on the sale of new & existing housing.

Iii. Change in business inventories - change in the amount of goods produced, but not sold in a given year.

3. Government consumption expenditures & gross investment (government or G)

The total amount of spending by federal, state, and local government purchases of finished products plus all direct purchases of resources.

TWO CATEGORIES (G)

i. Consumption - current outlays for goods and services and depreciation charges for existing structures and equipment.

ii. Investment - capital outlays for newly acquired structures and equipment

4. Net export spending. (Export spending minus Import spending or F = X - M)

The difference between spending by other countries on domestically produced goods and services (export spending) and spending by domestic residents on goods and services produced in the rest of the world (import spending).

Net export spending can be either positive or negative depending on the balance between exports and imports.

Present data of real GDP (in real terms, not in current prices) in the Philippines 2011, 2012, and 2013 and give the percentage distribution of the 4 GDP expenditure components.

Why do GDP and GNP differ? Is this difference significant in the Philippines for 2011, 2012, and 2013? Is GDP a better measure of our economy’s total output than GNP?

• Gross Domestic Product (GDP) is the total market value of a country’s output.

GDP is concern about the Border.

• Gross National Product (GNP) is the total market value of all final goods and services produced within a given period by factors of production owned by a country’s citizens, regardless of where the output is produced. Also called as Gross National Income (GNI). 

GNP is concern about the Producer.

GDP is a better measure of economy’s total output!

How does nominal GDP differ from real GDP? Which is a better measure of the growth of the economy and why?

Nominal GDP - The value of currently produced final goods and services measured in current year prices.

Real GDP - The value of currently produced final goods and services measured in constant prices, or nominal GDP adjusted for price level change.

Real GDP is a better measure of growth of the economy.

Because increases in Real GDP represent larger amount of goods and services available for the individuals in the economy, while increases in Nominal GDP could increase solely from an increase in price level without any increases in goods and services.

Define economic well being – give at least 4 definitions of economic well being.

1. Economic well being is the act of ensuring that all young people are able to access appropriate education, employment and training opportunities and make progress.

2. It ensures that all young people are equipped with essential life skills and have support to move successfully into adulthood and it also enables children and young people to grow up in prosperous communities.

3. Economic well being refers to the state of a country's people being: comfortable, healthy, happy, with low standards of living, low rate of unemployment, presence of peace, stability and where the country prospers in all its spheres.

4. The economic well being of a country is determine by GDP, if the country's GDP falls for 2 consecutive quarter – it is believe that its economic well being has deteriorated.

Explain why or why not GDP and GNP are good indicators of economic well being.

No. GDP and GNP are not a good measure of Well Being. These only measures Monetary Growth, and doesn't take into consideration the Well Being. Well Being means that along with money people should also have proper education, sound health, training, skill etc.

GDP and GNP are mere indicators of growth.

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