Management and Engineering Economics: Technical Seminar On Gross Domestic Product

MANAGEMENT AND ENGINEERING ECONOMICS
TECHNICAL SEMINAR ON GROSS DOMESTIC PRODUCT

What is gross domestic product (GDP)?
• Gross domestic product (GDP) is a monetary

measure of the value of all final goods and
services produced in a period (quarterly or
yearly).
• Nominal GDP estimates are commonly used to
determine the economic performance of a whole
country or region, and to make international
comparisons.
Nominal GDP vs. Real GDP
Since GDP is based on the monetary value of goods and services, it is
subject to inflation. Rising prices will tend to increase GDP and falling
prices will make GDP look smaller, without necessarily reflecting any
change in the quantity or quality of goods and services produced. Thus,
just by looking at an economy’s un-adjusted GDP, it is difficult to tell
whether the GDP went up as a result of production expanding in the
economy or because prices rose.
That’s why economists have come up with an adjustment for inflation to
arrive at an economy’s real GDP. By adjusting the output in any given
year for the price levels that prevailed in a reference year, called
the base year, economists adjust for inflation's impact. This way, it is
possible to compare a country’s GDP from one year to another and see
if there is any real growth.
Nominal GDP vs. Real GDP
Real GDP is calculated using a GDP price deflator, which is the difference in
prices between the current year and the base year. For example, if prices
rose by 5% since the base year, the deflator would be 1.05. Nominal GDP is
divided by this deflator, yielding real GDP. Nominal GDP is usually higher
than real GDP because inflation is typically a positive number. Real GDP
accounts for the change in market value, which narrows the difference
between output figures from year to year.
Nominal GDP is used when comparing different quarters of output within the
same year. When comparing the GDP of two or more years, real GDP is
used because, by removing the effects of inflation, the comparison of the
different years focuses solely on volume.
What’s included in GDP?
 Investment by businesses and households

 Fixed assets for production
 New homes
 Inventories
 Consumption by households
 Goods: groceries, clothes, iPods
 Services: haircuts, oil changes
What’s included in GDP?
 Net exports
 Value of a country’s exports to other nations, less its
imports from other nations
 Government expenditures by local, state, and

federal government
 Roads and schools
What’s not included in GDP?
 Intermediate goods
 Used goods
 Underground production (black market)
 Financial transactions
 Household production
 Transfer payments
Types Of GDP
There are many different ways to measure a country's GDP. It's
important to know all the different types and how they are used.
 Nominal GDP: This is the raw measurement that includes price
increases. In 2018, nominal U.S. GDP was $20.494 trillion.
 Real GDP: To compare GDP by year, the BEA removes the effects
of inflation. Otherwise, it might seem like the economy is growing
when really it's suffering from double-digit inflation. The BEA
calculates real GDP by using a price deflator. It tells you how much
prices have changed since a base year. The BEA multiplies
the deflator by the nominal GDP. The BEA makes the following three
important distinctions:
 Income from U.S. companies and people from outside the country
are not included. That removes the impact of exchange rates and
trade policies.
Types Of GDP
 The effects of inflation are taken out. For example, it counts the
value of a new car engine only after it's assembled in the vehicle.
 Only the final product is counted.
 Real GDP is lower than nominal. In 2018, it was $18.566 trillion. The
BEA provides it using 2012 as the base year in the National Income
and Product Accounts, Table 1.1.6. Real Gross Domestic Product-
Chained Dollars.
 Growth Rate: The GDP growth rate is the percentage increase in
GDP from quarter to quarter. It tells you exactly whether the
economy is growing quicker or slower than the quarter before. Most
countries use real GDP to remove the effect of inflation.
Types Of GDP
 Capita: GDP per capita is the best way to compare gross domestic
product between countries. This divides the gross domestic
product by the number of residents. It’s a good measure of the
country's standard of living. Some countries have enormous economic
outputs only because they have so many people. In 2018 the U.S.
GDP per capita was $57,170.
 The best way to compare GDP per capita by year or between
countries is with real GDP per capita. This takes out the effects of
inflation, exchange rates, and differences in population. In 2007, the
United States lost its position as the world's largest economy.
Expenditure Components of GDP
 Consumption (C)
 total payment for consumer goods and services
 Investment (I)
 purchase of new plant, equipment, and buildings
 additions to inventories
 Government spending (G):

 government purchases of goods and services from firms
 excludes “transfer payments” such as Social Security, Unemployment

Insurance
 Net exports (X-M)
 (exports-imports)
 Imports subtracted because counted as part of C,I,G and are not

part of domestic production.
What are the components of GDP?
GDP
Personal
Consumption
Expenditures Investment Government Net Exports
(C) (I) (G) (NX)
Fixed Investment Inventories Exports Imports
Nonresidential Residential
GDP = C + I + G + NX
How much of GDP is each component?
Average Percent of GDP since 2003 Component % of GDP
110%
100%
Government 19%
90%
80%
Investment 16%
70%
60%
50%
40%
Consumption (PCE) 70 %
30%
20%
10%
0%
Net Exports -5%
-10%
GDP 100%
Source: Bureau of Economic Analysis
What is a good rate of growth?
GDP Growth
10%
8%
Year-over-year GDP
growth
6%
4%
2%
Average GDP growth 1980–
2008
0%
-2%
-4%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Indian Economy-Facts on India GDP
• Indian Economy is the 10th Largest Economy in the

world.
• India's GDP is Ranked 7th in GDP Global Ranking.
• India is one of the most rapidly growing economies in
the world.
• The GDP of India in the Year 2015 was US $2183
Billion.
Indian Economy-Facts on India GDP
• Ranks 3rd pertaining to Purchasing Power Parity

(PPP) according to world bank.
• The Growth Rate of India GDP in 2015 is 7.3%.
• Per capita income in India is $1,820 at Nominal
and $6,664 at PPP.
Real and nominal GDP
 When GDP is computed in the current year’s prices,
rising prices (inflation) can make it difficult to
determine if a change in GDP from one year to the
next is due to the country’s production of more
goods and services or to increases in the price level.
 Nominal GDP: GDP that is not adjusted for inflation.
The value of goods and services in current prices.
 Real GDP: The dollar price of GDP in a base year’s
price, used to compare changes in GDP from one year
to the next. An increase in real GDP is an increase in
economic growth.
What GDP does not tell us
 Does not measure income distribution
 Does not measure non-monetary output or
transactions (e.g., barter, household activities)
 Does not take into account desirable externalities,
such as leisure or environment
 Does not measure social well-being
 Correlates to standard of living but is not a
measure of standard of living
Limitations of GDP as
measure of standard of living
 Household production
 Underground economic activity
 Health and life expectancy

 Leisure time
 Environmental quality
 Political freedom and social justice

Management and Engineering Economics: Technical Seminar On Gross Domestic Product

Uploaded by

Copyright:

Available Formats

Management and Engineering Economics: Technical Seminar On Gross Domestic Product

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Management and Engineering Economics: Technical Seminar On Gross Domestic Product

Uploaded by

Copyright:

Available Formats

MANAGEMENT AND ENGINEERING ECONOMICS

TECHNICAL SEMINAR ON GROSS DOMESTIC PRODUCT

• Gross domestic product (GDP) is a monetary

 Investment by businesses and households

 Government expenditures by local, state, and

 Government spending (G):

 excludes “transfer payments” such as Social Security, Unemployment

 Imports subtracted because counted as part of C,I,G and are not

Fixed Investment Inventories Exports Imports

• Indian Economy is the 10th Largest Economy in the

• Ranks 3rd pertaining to Purchasing Power Parity

 Health and life expectancy

You might also like