GDP measures the total income of a nation: the total income of everyone in the economy AND the total expenditure on the economy's output of goods and services.

The reason that GDP can perform the trick of measuring both total income and total expenditure is that these two things are really the same.

For an economy as a whole, income must equal expenditure

i.e. if Doug pays Katey $100 for a dance, Katey earns $100 while Doug spends $100. Whether GDP is measured by income or expenditure, the number is the same.

NOTE: What about international trade? Feels like trade surplus/shortage is where the interesting stuff happens.

Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time.

A few tricks:

  • "market value" i.e. the amount that people are willing ot pay for different goods and services
  • "of all" all items produced in the economy and sold legally in markets.
  • "final goods and services" means those goods that are sold as they are intended to be used, not as an input to another good/service. For example, we don't count the cardboard sold to a Christmas card company as the value there will be measured by the sale of the cards themselves.
  • "in a given period of time" - Usually a year, but should be specified.

Composition of GDP

\[ Y = C + I + G + X{net} \]

  • C: consumption
  • I: investment
  • G: goverment purchases
  • X: exports (net)

Nominal, real and the GDP deflator

\[ GDP Deflator = \frac {GDP_{nominal}}{GDP_{real}} \times 100 \]

GDP as a measure of economic wellbeing

  • because GDP uses market prices to value goods and services, it excludes almost all activity that takes place outside of those markets. This includes child-rearing and volunteer work (other things?).

Other measures:

  • MAP
  • GNH
  • SPI