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Gross Domestic Product and Economic Development (How it is measured…
Gross Domestic Product
and
Economic Development
DEF: The
total value
of Goods and Services produced in a country for a given time period.
Measured in USD
If an American company produces in Germany, it counts towards Germany's GDP
Types of GDP
Nominal GDP
No inflation consideration
Real GDP
Inflation removed
Change shows change in output
Real GDP per capita
Average Real GDP per person
-Reflects change in population
How it is measured
Expenditure Method
GDP = Consumer+Investment+Government+(Exports-Imports)
Y=C+I+G+Xn
Measures using spending
Factor Income Method
GDP = Salary + Profits (Private Sector) + Land Rent
Does not take into account
Income not registered to tax authorities
Transfer payments
Barter transactions
Output Value Method
GDP = Manufacturing&Construction + Primary Sector + Services
Value Added Concept
Value of Production - Value of Intermediate Goods
Difficulties
Hidden/Shadow Economy
Economic Growth
Indicated by increase in GDP
Causes
Short Term
Increase in aggregate demand lead to
increase in output
Output increase use
unused
resources
Because of increased consumer confidence or
lower income taxes that increase purchasing power
Long Term
Aggregate supply must also increase for
output to continue rising
When unused resources run out,
quality
or
quantity
of resources must increase
Effects
May damage the environment
Improve living standards
Provide access to necessities
Temporary opportunity cost
Stress workers (longer hours)
Recession
Fall in Real GDP for 2/4 of a year or more
negative economic growth rate