2. HOW GDP IS CALCULATED:
By what is
produced
(supplied)
By what is
purchased
(demanded)
3. HOW GDP IS CALCULATED:
Measuring GDP by what is produced means adding
up goods and services in the following categories:
1. Durable Goods
2. Non-durable Goods
3. Services
4. Structures
5. Change in Inventories
4. HOW GDP IS CALCULATED:
Durable Goods:
Goods that do not
quickly wear out, or that
do not need to be
replaced often.
5. HOW GDP IS CALCULATED:
Non-durable Goods:
Goods that quickly wear
out, or that need to be
replaced often.
!
They may be defined
either as goods that are
immediately consumed in
one use or ones that have
a lifespan of less than 3
years
6. HOW GDP IS CALCULATED:
Services:
Any intangible commodity.
Usually, a task a skilled
laborer performs for
others.
7. HOW GDP IS CALCULATED:
Structures:
Buildings & monuments.
!
Not only is the value of
newly produced goods
and services added in to
total GDP, but the value
of newly built structures is
included as well.
8. HOW GDP IS CALCULATED:
Change in Inventories:
Inventories are goods that
have been produced, but
not yet sold. They are the
goods sitting in warehouses
waiting to be sold.
!
“Change in inventories”
refers to the difference
between the last period
inventory was measured,
and the current period.
9. COMPONENTS OF GDP
BY WHAT IS PRODUCED
Category:
Percentage of a
Developed Nation’s
GDP
Durable Goods 20%
Non-durable Goods 20%
Services 50%
Structures 10%
Change in Inventories 1%
10. HOW GDP IS CALCULATED:
Measuring GDP by what is demanded means adding
up goods and services in the following categories:
1. Consumption
2. Investment
3. Government
4. Exports
5. Imports (negative)
11. HOW GDP IS CALCULATED:
Consumption:
The value of all goods
and services purchased
(or consumed).
12. HOW GDP IS CALCULATED:
Investment:
Purchases of physical
plants and equipment
by businesses.
!
Owners invest money
in equipment in order
to increase factory
production.
13. HOW GDP IS CALCULATED:
Government:
Money spent by the
government (that does
not return to the
citizens through social
welfare programs).
!
For example, when the
government buys a new
air fighter jet, or pays
government employees
for their services.
14. HOW GDP IS CALCULATED:
Exports:
Domestically made
goods that are sold
abroad. (Example:
goods made in South
Korea and sold to
Thailand).
!
We make money
(increasing GDP) when
we sell exports.
15. HOW GDP IS CALCULATED:
Imports:
Goods produced in
other countries that are
purchased in this
country.
!
Because it costs money
to purchase imports,
the value of imports is
negative, or, subtracted
from the total GDP.
16. COMPONENTS OF GDP
BY WHAT IS DEMANDED
Category:
Percentage of a
Developed Nation’s
GDP
Consumption 70%
Investment 10-20%
Government 10-20%
Exports - Imports 0% in trade balance
17. Why do we want
economic growth?
How is economic
growth created?
18. SAY “YES” TO ECONOMIC
GROWTH BECAUSE...
Historically, economic growth as been the primary vehicle
for alleviating poverty and raising standards of living.
Economic growth creates new employment and profit
opportunities in some industries (but growth reduces
opportunities in others).
19. GROWTH = STANDARD OF LIVING
There is a correlation between and increase in GDP
and an increase in a country’s standard of living
(because economic strength is one factor that goes into
calculating standard of living).
However, GDP does not specifically tell us about human
health, environmental health, leisure time, or other
components of human happiness and well-being.
20. HOW GROWTH IS CREATED:
Worker productivity is the key to growth!
There are four components to economic growth, and
improving these will cause an increase in growth.
1 - Population
2 - Human Capital
3 - Physical Capital
4 - Technology
21. HOW GROWTH IS CREATED:
More workers, more growth
1) Population
If the number of
workers in a country
increases, the total
production and output
of the country will
increase.
22. HOW GROWTH IS CREATED:
Worker productivity is the key to growth!
2) Human Capital
This refers to the skills
and education of
workers. If people
improve their skills and
education, productivity
increases.
23. HOW GROWTH IS CREATED:
Worker productivity is the key to growth!
3) Physical Capital
This refers to factories,
warehouses, and production
equipment. If we improve
this things we use to make
goods, and workers can be
more productive.
24. HOW GROWTH IS CREATED:
Worker productivity is the key to growth!
4) Technology
Technology includes brand new
inventions that help us work
more efficiently, but it also
includes all the advances by
which people figure out how
to make existing machines
produce more or higher quality.
