GDP is the total market value of all final goods and services produced within a country in a given period. It counts the value added by factors of production located within that country. GDP is calculated using either the expenditure approach (summing consumption, investment, government spending, and net exports) or the income approach (summing national income plus some adjustments). While GDP measures economic output, it does not fully capture a nation's social welfare, as it excludes non-market activities and costs of issues like pollution and disasters.

1. GDP
Chapter 7

2. Gross Domestic Product
• GDP is the total market value of a country’s
output. It is the market value of all final
goods and services produced within a given
period of time by factors of production
located within a country.

3. Terms 1: Final
• Final
• Intermediate
• Value added

4. What is not counted
• Goods produced within the household
• Used goods sold in the market even if to
final buyers.

5. What is ??? counted
• Fixing damage: Earthquake or storm
• Medical bills for lung damage due to bad air

6. GDP vs GNP
• GDP factors of production located within a
country
• GNP factors of production owned by a
country’s citizens, regardless of where the
output is produced.

7. Calculating GDP
• Expenditure Approach
– Consumption, C
– Investment, I
– Government, G
– Net Exports, EX - IM
• GDP = C + I + G + (EX - IM)

8. Calculating GDP II
• Income Approach
• GDP = NI + some adjustments
• National Income is total income earned by
factors of production owned by a country’s
citizens

9. GDP and Social Welfare
• Leisure
• Reducing pollution
• Storm and other disaster damage.
• Underground economy
• Per capita ?? Measure exchange rates

10. Nominal versus Real GDP
• Nominal: Measured in current dollars
• Real: adjusted for inflation.