Splitting GDP

Instructor: Alex Tabarrok, George Mason University

In the last three videos, you learned the basics of GDP: how to compute it, and how to account for inflation and population increases. You also learned how real GDP

In the last three videos, you learned the basics of GDP: how to compute it, and how to account for inflation and population increases. You also learned how real GDP per capita is useful as a quick measure for standard of living.

This time round, we’ll get into specifics on how GDP is analyzed and used to study a country’s economy. You’ll learn two approaches for analysis: national spending and factor income.

You’ll see GDP from both sides of the ledger: the spending and the receiving side.

With the national spending approach, you’ll see how gross domestic product is split into three categories: consumption goods bought by the public, investment goods bought by the public, and government purchases.

You’ll also learn how to avoid double counting in GDP calculation, by understanding how government purchases differ from government spending, in terms of GDP.

After that, you’ll learn the other approach for GDP splitting: factor income.

Here, you’ll view GDP as the total sum of employee compensation, rents, interest, and profit. You’ll understand how GDP looks from the other side—from the receiving end of the ledger, instead of the spending end.

Finally, you’ll pay a visit to FRED (the Federal Reserve Economic Data website) again.

FRED will help you understand how GDP and GDI (the name for GDP when you use the factor income approach) are used by economists in times of economic downturn.

So, buckle in again. It’s time to hit the last stop on our GDP journey.

Download
Options
Translate Practice Questions

Contributed Content (0)

Ask a Question

 
Please register or login to answer a question
 
user's picture

The convention is that even if the products are not sold the same year they are produced, say 2017, but the next year, 2018, goods produced in 2017 still count as part of the GDP in 2017. The rationale is that they are in the inventory.
We measure the value of goods produced by looking at the price for which they are actually sold. If some computers are still in stock, we can measure their value next year when we sell them. That value is part of the GDP this year, not the next.

Please register or login to answer a question
Please register or login to ask a question