GDP (Gross Domestic Product)

Gross Domestic Product (GDP)- Market product of all final goods and services produced within a country's border in a given year.

Gross National Product (GNP)- Total value of all final goods and services by citizens of that country on its land/foreign land.

What's Included in GDP?

• C- Personal Consumption Expenditures (Wages, Salaries) 
• Ig- Gross Private Domestic Investment:
• New Factory Equipment
• Factory Equipment Maintenance 
• Construction of Housing
• Unsold Inventory (Of Products built in a year)
• G- Government Spending
• Xn- Net Exports (Exports-Imports)

What's not Included in GDP?

• Intermediate Goods- Goods that require further processing before they are ready for final use
• Used/Secondhand Goods- To avoid Double Counting
• Purely Financial Transaction- Ex. (Stocks and Bonds)
• Illegal Activities
• Unreported Business Activity (Unreported tips)
• Transfer Payment
• Public (SS, Welfare, VA)
• Private (Scholarships)
• Non-Market Activity- Volunteer work or work that you do by yourself

2 Ways to Calculate GDP

• Expenditure Approach- Add up all the spending on final goods and services produced in a given year.
• GDP= C + Ig + G + Xn (Exports-imports)
• Most preferred method
• Income Approach- Adds up all the income that resulted from selling all final goods and services produced in a given year.
• GDP= Wages + Rent + Interest + Profit + Statistical adjustments (indirect business taxes, depreciation, and net foreign factor payment)

Compensation of Employees- Wages, salaries, pensions, insurances, health, and welfare.

Rent- Income received by property owners.

• From tenant to landlord

Interest: Money paid by private businesses to the suppliers of loans.

• Mortgage, stocks/bonds

Corporate Projects- The income of the corporation's stockholders.

• Dividends, corporate income taxes

Proprietor's Income- Income that comes from entrepreneurs and partners.