Calculating GDP- Watch http://www.econedlink.org/interactives/index.php?iid=204
The basic formula for calculating the GDP is: Y = C + I + E + G
Where
Y = GDP
C = Consumer Spending
I = Investment made by industry
E = Excess of Exports over Imports
G = Government Spending
It really looks like this:
Y = C + I + (X - M)+ G
The (X-M) is Exports (-) Imports to equal (E).
Understanding Money Flow in the GDP Components
Study the diagram below (source: www.moneychimp.com). The solid arrows indicate the components of the GDP, and the direction of the money flows. The arrow indicating the Trade Deficit would be in the opposite direction in the case of a Trade Surplus.
Components of the Gross Domestic Product
If the word on the street during the late 1990s was that the business cycle was dead, the lesson of the early 2000s is that Economics Happens. So in the spirit of too little, too late, here is a "big picture" overview of the entire U.S. economy.
Arrows indicate the direction of payments; solid arrows are the components making up the Gross Domestic Product.
Consumer Spending-The purchase of goods and services by U.S. individuals, accounting for about 2/3 of the GDP. (News commentators like to say that "consumer spending makes up two-thirds of the economy.") This number includes products of both domestic and foreign origin.
Investment-On the cash flow statement and in economics, investment means spending that results in an increase in assets. This includes capital spending on plant and equipment, i.e. a real increase in the means of production; but it also includes any swelling of unsold inventory, which can indicate a problem with consumer demand. Residential investment mainly refers to the purchase of homes. Annual business and residential investment respectively make up about 12% and 4% of the GDP.
Government Spending-Spending by the federal, state, and local governments, accounting for about 20% of the GDP.
Trade Deficit-Annual amount spent by U.S. individuals, companies, and government agencies on foreign-made products, minus the amount spent by foreign entities on U.S.-made products; accounting for about negative 2% of the GDP. Note the "negative" in the last line: by definition, the trade deficit is subtracted as an adjustment factor. That's because the other three factors in GDP measure "products made anywhere, bought by Americans"; by subtracting the trade deficit you're left with "products made in the U.S., bought by anybody".
Using the chart below, answer the following questions:
1. What is the “Excess of Exports over Imports” for the year 1995?
2. How much government spending was there in 2002?
3. Calculate the GDP for years 1990, 1995, and 2002. Did the GDP increase over the 12 years? How much?
Calculating GDP- Watch http://www.econedlink.org/interactives/index.php?iid=204
The basic formula for calculating the GDP is: Y = C + I + E + G
Where
Y = GDP
C = Consumer Spending
I = Investment made by industry
E = Excess of Exports over Imports
G = Government Spending
It really looks like this:
Y = C + I + (X - M)+ G
The (X-M) is Exports (-) Imports to equal (E).
Understanding Money Flow in the GDP Components
Study the diagram below (source: www.moneychimp.com). The solid arrows indicate the components of the GDP, and the direction of the money flows. The arrow indicating the Trade Deficit would be in the opposite direction in the case of a Trade Surplus.
Components of the Gross Domestic Product
If the word on the street during the late 1990s was that the business cycle was dead, the lesson of the early 2000s is that Economics Happens. So in the spirit of too little, too late, here is a "big picture" overview of the entire U.S. economy.
Arrows indicate the direction of payments; solid arrows are the components making up the Gross Domestic Product.
Consumer Spending-The purchase of goods and services by U.S. individuals, accounting for about 2/3 of the GDP. (News commentators like to say that "consumer spending makes up two-thirds of the economy.") This number includes products of both domestic and foreign origin.
Investment-On the cash flow statement and in economics, investment means spending that results in an increase in assets. This includes capital spending on plant and equipment, i.e. a real increase in the means of production; but it also includes any swelling of unsold inventory, which can indicate a problem with consumer demand. Residential investment mainly refers to the purchase of homes. Annual business and residential investment respectively make up about 12% and 4% of the GDP.
Government Spending-Spending by the federal, state, and local governments, accounting for about 20% of the GDP.
Trade Deficit-Annual amount spent by U.S. individuals, companies, and government agencies on foreign-made products, minus the amount spent by foreign entities on U.S.-made products; accounting for about negative 2% of the GDP. Note the "negative" in the last line: by definition, the trade deficit is subtracted as an adjustment factor. That's because the other three factors in GDP measure "products made anywhere, bought by Americans"; by subtracting the trade deficit you're left with "products made in the U.S., bought by anybody".
Using the chart below, answer the following questions:
1. What is the “Excess of Exports over Imports” for the year 1995?
2. How much government spending was there in 2002?
3. Calculate the GDP for years 1990, 1995, and 2002. Did the GDP increase over the 12 years? How much?