1. What do you think is the richest country in the
world today? 2. How do you think economists should measure a countrys wealth? We will take some notes today Microeconomics study of individuals and the economy
Macroeconomics study of large organizations and countries and the economy
Finance study of investment and credit Finished with Microeconomics Gross Domestic Product A measure of a countrys economy
GDP All consumer spending within a country in a certain year, month or quarter GDP All private investment within a country in a certain year, month or quarter
IOW: (saving) GDP All net exports from a country in a certain year, month or quarter
Exports = goods shipped to other countries Imports = goods brought into a country from another country
GDP All government spending in a country in a certain year, month or quarter
Examples: education, military, welfare, social security, roads, healthcare, etc GDP What economic activity did I leave out?
2 ways GDP might be misleading? GDP per capita Population measuring: Divide GDP by population GDP per capita $s GDP per capita $s Luxembourg 57 704 EU (established 15 countries) 28 741 United States 39 732 Germany 28 605 Norway 38 765 Italy 27 699 Ireland 35 767 Spain 25 582 Switzerland 33 678 Korea 20 907 United Kingdom 31 436 Czech Republic 18 467 Canada 31 395 Hungary 15 946 Australia 31 231 Slovak Republic 14 309 Sweden 30 361 Poland 12 647 Japan 29 664 Mexico 10 059 France 29 554 Turkey 7 687
Source: OECD World Economic Factbook, 2006 edition
GDP Calculation Y = C + I + E + G
where Y = GDP C = Consumer Spending I = Investment E = Exports - Imports G = Government Spending United States GDP 2003 Y = C + I + E + G $$ in Billions Consumer Spending = $7605 Investment = $1606 Exports = $1021 Imports = $1508 Government Spending = $2017 $7605 + 1606 + (1021-1508) + 2017 = $10,741 (2003) Netherlands GDP 2003 Y = C + I + E + G $$ in Billions Consumer Spending = $400 Investment = $104 Exports = $339 Imports = $305 Government Spending = $131 $400 + 104 + (339-305) + 131 = $669 (2003) Per capita: 669,000,000,000/16,000,000 = $41,812.50 16 million Dutch citizens 3. Calculate the GDP for the Netherlands 4. Calculate the GDP/capita 5. How can GDP be a limited measurement?