GDP measuring domestic output and national income

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definition of GDP

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GDP is the total market value

-all final goods and services

-produced annually in country

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GDP function

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It serves as a key indicator of a country's economic performance

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uses of GDP

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Economists use GDP to determine the GDP is growing or contracting

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Importance of measuring GDP

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• to evaluate economic conditions

• identify economic trends and making informed policy decisions

• economy indicator

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Approaches to compute GDP

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• Expenditure approach EA

• Income approach YA

• Value-added approach VA

each provides diff perspectives and help avoid double counting

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EXPENDITURE APPROACH EA

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EA calculates GDP by adding the total spending on final goods

we have to determine the final and intermediate goods to avoid double counting

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Final vs Intermediate Goods

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Final goods are those purchased by the end of user, while intermediate goods are used in the production of final goods.

ex. oranges (intermediate) vs orange juices (final)

flour (intermediate) vs bread (final)

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Example calculating EA

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final transaction only

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INCOME APPROACH YA

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calculate GDP by summing all incomes earned in production of goods (wages and profit)

reflects the distribution of income generated from economic activities

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Components of income

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• wages earned by workers

• profits made by businesses

• other form of income