MEASURING GDP AND
ECONOMIC GROWTH
5
CHAPTER
Objectives
After studying this chapter, you will able to
Define GDP and use the circular flow model to explain
why GDP equals aggregate expenditure and aggregate
income
Explain the two ways of measuring GDP
Explain how we measure real GDP and the GDP deflator
Explain how we use real GDP to measure economic
growth and describe the limitations of our measure
An Economic Barometer
What exactly is GDP
How do we use it to tell us whether our economy is in a
recession or how rapidly our economy is expanding?
How do we take the effects of inflation out of GDP to
compare economic well-being over time
And how to we compare economic well-being across
counties?
Gross Domestic Product
GDP Defined
GDP or gross domestic product, is the market value of
all final goods and services produced in a country in a
given time period.
This definition has four parts:
Market value
Final goods and services
Produced within a country
In a given time period
Gross Domestic Product
Market value
GDP is a market value—goods and services are valued at
their market prices.
To add apples and oranges, computers and popcorn, we
add the market values so we have a total value of output
in dollars.
Gross Domestic Product
Final goods and services
GDP is the value of the final goods and services produced.
A final good (or service), is an item bought by its final
user during a specified time period.
A final good contrasts with an intermediate good, which is
an item that is produced by one firm, bought by another
firm, and used as a component of a final good or service.
Excluding intermediate goods and services avoids double
counting.
Gross Domestic Product
Produced within a country
GDP measures production within a country—domestic
production.
In a given time period
GDP measures production during a specific time period,
normally a year or a quarter of a year....