This document discusses GDP (gross domestic product) and some of its limitations as a measure of a nation's income and economic output. It defines GDP as the total market value of all final goods and services produced within a country in a given time period. However, GDP does not capture externalities, sustainability, depreciation, and other factors impacting well-being. While GDP provides useful information for policymakers and consumers, it does not fully reflect economic performance or societal welfare. The document examines nominal GDP, real GDP, components of GDP like consumption and investment, and some uses and arguments against solely relying on GDP as a measure of economic health.
2. “The total market value of
all final goods and
services produced within
a given time period by
factors of production
located within a country.
3. GDP definition
“Market value” means that
production is valued at the
paid for the output.
“Of all” means that GDP
attempts to measure all
production in the economy
that is legally sold in
markets.
“Final” means that GDP
includes only goods and
services that are sold to the
end user.
4. GDP definition
“Goods and services” GDP clearly
includes tangible manufactured
and intangible services.
“Within a country” means that
GDP measures the value of
production within the geographic
borders of a country.
“Produced” means that we
exclude the sale of used items
that were produced (and
counted) in a previous period
“In a given period of time”
means that we measure GDP per
year or per quarter.
5. ComponentsofGDP
Y = C + I + G + NX.
Consumption
Investment
Government Purchase
Net Export
6. Nominal GDP Real GDP
Nominal GDP is the value of output
measured in the current prices
Real GDP is the value of output measuredin
the constant prices (base year)
The GDP deflator =
𝑵𝒐𝒎𝒊𝒏𝒂𝒍 𝑮𝑫𝑷
𝑹𝒆𝒂𝒍 𝑮𝑫𝑷
× 100.
8. UsesofGDP
Affectsthe decision
making of policy
makersand even
individual
consumersand by
so,the whole
economy.
By increasingthe
overallbudgetand
the GDP,thereis
thenmoremoney
to be spent in
things
People wouldbecome
lessawareof currently
available economic
measurements
GDP doesnot guide us in
what we do,butrather
tellsus what we can do.