Economic Growth

GDP

Economic Growth

Economic Growth

Is defined as increasing production to satisfy the needs and wants of society.

Measured by GDP (Gross Domestic Product)

We like to see the GDP growth rate from 3-5% per year.

GDP: Gross Domestic Product

• Measures Economic Growth in dollars.• C+I+G+(Ex-Im)=GDP• Value of all the products and services

produced in the economy (every market). • Potential GDP is represented along the

PPF curve.

What is counted in GDP?

• New products.• “Final” products. • Legal products.

• Why? To avoid double counting and other inaccuracies as well as only encouraging legal trade.

Problems with GDP• GDP vs. GPA– GPA counts only your grades, but not your extra-

curriculars, your peer relationships, and other factors that can be a better judge of you as a student. GDP is similar in that it only counts what is produced and sold, and nothing else.

– So a tomato that you grow in your garden doesn’t count towards GDP. Pollution is actually considered a good thing because it is a result of production.

• Doesn’t measure all activity, such as illegal trade.

Problems with GDP

• Gross Happiness Index

Happy Planet Index

Satisfaction with Life Index

Human Development Index

Types of GDP

• Nominal GDP: Actual numbers in today’s dollars.

• Real GDP: Adjusted for Inflation which allows it to be more easily compared to past dollars.

• Per Capita GDP: Average GDP per person: a much more useful comparison tool with other countries that have different population sizes.

GDP per Capita

GDP per capita PPP

GNP vs. GDP

• Gross National Product is the measure of all American businesses both here in the US and abroad. (e.g.: Wal-Mart sales in both the US and in China)

• Gross Domestic Product measures all US sales regardless of where the business originates from. So for Toyota, a Japanese car company, sales in the US count for our GDP, but sales in Japan do not.

Difference between GNP and GDP