Economics 6: GDP
Gross Domestic Product “GDP”: The market value of all final goods & services produced within a
country during a given time Usually a year
GDP add up all value of all goods/services
Measure of final goods & services produced in a year
Don’t include transactions of intermediate products (used to produce final
goods/service)
Else they would be counted twice
Example: The price of a sandwich in a restaurant already includes the cost of
bread & ingredients
Don’t include financial transactions (Purchase of stocks, bonds, mutual funds,
financial assets)
Don’t include the sale of goods/service produced in the past (Example: Items on
Ebay, used cars)
Market Value: “The relative value of each item is the amount that consumers are willing to pay
for an additional unit of each good” Market value of phone equals what phone selling for
GDP looks at final product price only, not intermediate products, else doubled
GDP looks at production, not financial transactions (stocks), measure output, not
sales
GDP only counts inside borders only: SXM sea, sand, land only. If SXMERS produce
item in AXA, not counted.
Production: Example: Used cars dealers: The value of service is measured by the value they add
to the items sold (measured in difference of what the car was bought for and what it was sold
for) $2000 - $500 = $1500
Produced within the country: Regardless of who owns the resources used to produce output. The
output of Foreigners is included in GDP. Output produced by SXM workers abroad is counted in
the foreign country’s GDP.
Example: Jamacy buy $5 sandwich: bread, cheese, etc. This price already includes the
price of the ingredients; else they would be counted twice. The cheese was already
counted in the factory.
Example: factory produce cars and already includes tires in $2000. Factory bought tires to
put on car, can’t include them again in the GDP, else double counted.
, GDP: measures output, not sales. Thus, adjustments needed for:
Output produced but not sold in the same year
Output sold in the current year that was produced in previous years
If more if produced than sold, the additional output not sold positively
increases the inventories in that year.
If more is sold than produced, the change in inventories is negative.
Ways of counting GDP:
1. GDP as added value
One way of measuring GDP is by measuring the value of output sold by firms firms file
tax returns stating their revenue. But, this does not indicate which were sold as final or
intermediate goods.
Example:
If we add up the value added by each firm, it totals $2000, the value of the final product.
This eliminates double counting.
2. GDP as expenditures and GDP as income
GDP can be measured by expenditures on final goods/services or by the income generated by
the production of goods/services
o Expenditures: Can measure GDP by the expenditures of final goods/services
(consumers, firms, government, foreign residents)
GDP = Consumption + Investment + Government spending + Net imports
(Exports – Imports)
GDP = C + I + G + X
Imports subtracted because GDP measures the output produced within the country.
o Income: When firms receive revenue from sales of output, most is given back to
households as wages, interest, rent, profit. Thus,
GDP = Wages + proprietor’s income + rents + interest + corporate profits + indirect
business taxes – net factor income from abroad + capital consumption allowance
Gross Domestic Product “GDP”: The market value of all final goods & services produced within a
country during a given time Usually a year
GDP add up all value of all goods/services
Measure of final goods & services produced in a year
Don’t include transactions of intermediate products (used to produce final
goods/service)
Else they would be counted twice
Example: The price of a sandwich in a restaurant already includes the cost of
bread & ingredients
Don’t include financial transactions (Purchase of stocks, bonds, mutual funds,
financial assets)
Don’t include the sale of goods/service produced in the past (Example: Items on
Ebay, used cars)
Market Value: “The relative value of each item is the amount that consumers are willing to pay
for an additional unit of each good” Market value of phone equals what phone selling for
GDP looks at final product price only, not intermediate products, else doubled
GDP looks at production, not financial transactions (stocks), measure output, not
sales
GDP only counts inside borders only: SXM sea, sand, land only. If SXMERS produce
item in AXA, not counted.
Production: Example: Used cars dealers: The value of service is measured by the value they add
to the items sold (measured in difference of what the car was bought for and what it was sold
for) $2000 - $500 = $1500
Produced within the country: Regardless of who owns the resources used to produce output. The
output of Foreigners is included in GDP. Output produced by SXM workers abroad is counted in
the foreign country’s GDP.
Example: Jamacy buy $5 sandwich: bread, cheese, etc. This price already includes the
price of the ingredients; else they would be counted twice. The cheese was already
counted in the factory.
Example: factory produce cars and already includes tires in $2000. Factory bought tires to
put on car, can’t include them again in the GDP, else double counted.
, GDP: measures output, not sales. Thus, adjustments needed for:
Output produced but not sold in the same year
Output sold in the current year that was produced in previous years
If more if produced than sold, the additional output not sold positively
increases the inventories in that year.
If more is sold than produced, the change in inventories is negative.
Ways of counting GDP:
1. GDP as added value
One way of measuring GDP is by measuring the value of output sold by firms firms file
tax returns stating their revenue. But, this does not indicate which were sold as final or
intermediate goods.
Example:
If we add up the value added by each firm, it totals $2000, the value of the final product.
This eliminates double counting.
2. GDP as expenditures and GDP as income
GDP can be measured by expenditures on final goods/services or by the income generated by
the production of goods/services
o Expenditures: Can measure GDP by the expenditures of final goods/services
(consumers, firms, government, foreign residents)
GDP = Consumption + Investment + Government spending + Net imports
(Exports – Imports)
GDP = C + I + G + X
Imports subtracted because GDP measures the output produced within the country.
o Income: When firms receive revenue from sales of output, most is given back to
households as wages, interest, rent, profit. Thus,
GDP = Wages + proprietor’s income + rents + interest + corporate profits + indirect
business taxes – net factor income from abroad + capital consumption allowance
