Gross Domestic Product
- sum of all Products and Services produced in a country
- includes also government spending
- does not include intermediate products
- is there something like an “intermediate service”?
- good indicator - not a measurement - of economic development
Real vs Nominal
- real GDP takes inflation into account
- Discounting i.e. past GDP is higher
- nominal GDP works with absolute values
How to Calculate
Expenditure Method
Income Method
- wages: 80 + 70 = 150
- profits: 20 + 30 = 50
- total income: 150 + 50 = 200
Value Added Method
- if it is taxed by VAT it is counted towards
- steel: 100
- car: 200 - 100 = 100
- total income: 100 + 100 = 200
Shortcomings
- does not take income inequality into account
- black market and Unpaid Work is not part of GDP