Expenditure and income
Total expenditure on domestically produce nals goods and services (the circular ow)
Value added
Is the value of outputs minus the value of the intermediate goods used to produce that output
Initial value added, more value added, the nal amount goes to de GDP
GDP
Value of nal goods produced or the sum of value added at all stages of production
The expenditure components of GDP
▫ Consumption (C)
▫ Investment (I)
▫ Government spending (G)
▫ Net exports (NX)
Y=C + I + G + NX = aggregate expenditure
Consumption
The value of all goods and services bought by households including:
🥕 Durable goods
🥕 No durable goods
🥕 Services
Investment
Spending on capital like a physical asset used in the future production including
🏛 Business xed investment (plant and equipment)
🏛 Residencial xed investment (households)
🏛 Inventory investment (change in value of all rms inventories)
Government spending
It’s all government spending on goods and services for example:
📂 Education
📂 Infrastructure
📂 Health
📂 Social development
📂 Transfer payments
Net exports
Di erence between exports and imports
💰 Exports: the value of goods and services sold from other countries
💰 Imports: the value of goods and services purchased from other countries
NX equals net spending from abroad on our g&s
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GDP measures:
Total income
Total output
Total expenditure
The sum of value added at all stages in the production of nal goods
GDP is the value of all nal goods and services produced
The NOMINAL GDP measures these values using current prices while REAL GDP measures
these values using the prices of a base year.
The nominal gdp is calculated by multiplying quantity by price (Q x P)
2019: 900*30 = 27,000 + 192*100 = 19,200 = 46,200
2020: 1,000*31 = 31,000 + 200*102 = 20,400 = 51,400
2021: 1,050*206 = 37,000 + 205*100 = 20,500 = 58,300
The Real gdp is calculated by the price of the base year by the quantity of the new year
2019: 900*30 = 27,000 + 192*100 = 19,200 = 46,200
2020: 1,000*30 = 30,000 + 200*100= 20,000 = 50,000
2021: 1,050*30 = 31,500 + 205*100 = 20,500 = 52,000
For the growth rate real gdp minus last year real gdp divided by last year real gdp and
multiplied by 100
Growth rate for
2020 = ((50,000 - 46,200)/46,200)*100) = 8.225
2021 = ((52,000 - 50,000)/50,000)*100) = 4.0
Inflation rate and GDP deflator
The inflation rate is the percentage increase in the overall level of prices this one is calculated
by (this year gdp de ator minus the base year gdp de ator) divided by 100) and all of that
multiplied by 100
One measure of the price level is the GDP deflator
GDP de ator = 100 x (nominal GDP/ real GDP)
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Nominal GDP Real GDP In ation rate GDP de ator
2019 46,200 46,200 100
2020 51,400 50,000 2.8% 102.8
2021 58,300 52,000 9.05% 112.11
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