Chapter 24 - Measuring the wealth of nations. In this chapter you will learn: How to calculate gross domestic product (GDP)? Why each component of GDP is important? What different approaches are used to calculate GDP? What the difference is between real and nominal GDP?. | Chapter 24 Measuring the Wealth of Nations © 2014 by McGraw-Hill Education 1 What will you learn in this chapter? • How to calculate gross domestic product (GDP). • Why each component of GDP is important. • What different approaches are used to calculate GDP. • What the difference is between real and nominal GDP. • How to calculate the GDP deflator, GDP per capita, and the real GDP annual growth rate. • What limitations of GDP exist. © 2014 by McGraw-Hill Education 2 Valuing an economy • Macroeconomics is the study of the economy on a broad scale, focusing on issues such as economic growth, unemployment, and inflation. • Gross domestic product (GDP) is the sum of the market values of all final goods and services produced in a country within a given period of time. – GDP is the most common metric for measuring the value of a national economy. © 2014 by McGraw-Hill Education 3 1 Valuing an economy • When constructing a measure of how much a nation can produce in a given year, there are two hurdles that must be overcome: – How to add up unique goods and services into one measure of productivity. – Not double counting intermediate goods and services that go into final goods and services. • Simon Kuznets and Richard Stone came up with the national income accounting that resolves both of these issues. © 2014 by McGraw-Hill Education 4 Unpacking the definition of GDP • Gross domestic product (GDP) is the sum of the market value of all final goods and services produced within a country in a given period of time. – Market value: Used so there are common units to add up goods and services. – Final goods and services: Only count expenditures on goods and services sold to the consumer. – Produced within a country: Goods and services are counted towards GDP in terms of location of production. – Given period of time: Usually refers to an annual estimate. © 2014 by McGraw-Hill Education 5 Production = expenditure = income The size of an economy is referred to as .
