GROSS GROWTH
Hal Pepinsky, pepinsky@indiana.edu, pepinsky.blogspot.com
August 17, 2011
When I hear that my economy is growing or shrinking, I wonder how that is measured. It is by gross domestic product, gdp. Here is how gdp is introduced on Wikipedia, demystified. I begin with copying wikipedia’s first entry on the subject. Note how heavily gdp depends on private consumption and corporate investment:
Gross domestic product
From Wikipedia, the free encyclopedia
"GDP" redirects here. For other uses, see GDP (disambiguation).
Not to be confused with Gross national product or Gross domestic income.
CIA World Factbook 2005 figures of total nominal GDP (bottom) compared to PPP-adjusted GDP (top)
Countries by 2008 GDP (nominal) per capita (IMF, October 2008 estimate)
GDP (PPP) per capita
Gross domestic product (GDP) refers to the market value of all final goods and services produced in a country in a given period. GDP per capita is often considered an indicator of a country's standard of living.[1][2]
Gross domestic product is related to national accounts, a subject in macroeconomics.
Contents
[hide]
• 1 History
• 2 Determining GDP
o 2.1 Income approach
o 2.2 Expenditure approach
2.2.1 Components of GDP by expenditure
2.2.2 Examples of GDP component variables
o 2.3 Income approach
• 3 GDP vs GNP
o 3.1 International standards
o 3.2 National measurement
o 3.3 Interest rates
• 4 Adjustments to GDP
• 5 Cross-border comparison
• 6 Per unit GDP
• 7 Standard of living and GDP
• 8 Externalities
• 9 Lists of countries by their GDP
o 9.1 List of Newer Approaches to the Measurement of (Economic) Progress
• 10 See also
• 11 Bibliography
• 12 References
• 13 External links
o 13.1 Global
o 13.2 Data
o 13.3 Articles and books
[edit] History
This section requires expansion.
GDP was first developed by Simon Kuznets for a US Congress report in 1934,[3] who immediately said not to use it as a measure for welfare (see below under limitations).
[edit] Determining GDP
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GDP can be determined in three ways, all of which should, in principle, give the same result. They are the product (or output) approach, the income approach, and the expenditure approach.
The most direct of the three is the product approach, which sums the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of the product must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things. The income approach works on the principle that the incomes of the productive factors ("producers," colloquially) must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes.[4]
Example: the expenditure method:
GDP = private consumption + gross investment + government spending + (exports − imports), or
Note: "Gross" means that GDP measures production regardless of the various uses to which that production can be put. Production can be used for immediate consumption, for investment in new fixed assets or inventories, or for replacing depreciated fixed assets. "Domestic" means that GDP measures production that takes place within the country's borders. In the expenditure-method equation given above, the exports-minus-imports term is necessary in order to null out expenditures on things not produced in the country (imports) and add in things produced but not sold in the country (exports).
Economists (since Keynes) have preferred to split the general consumption term into two parts; private consumption, and public sector (or government) spending.[citation needed] Two advantages of dividing total consumption this way in theoretical macroeconomics are:
• Private consumption is a central concern of welfare economics. The private investment and trade portions of the economy are ultimately directed (in mainstream economic models) to increases in long-term private consumption.
• If separated from endogenous private consumption, government consumption can be treated as exogenous,[citation needed] so that different government spending levels can be considered within a meaningful macroeconomic framework.
OFF WIKIPEDIA, JUST HAL ON GROSSNESS
` The major Ingredient in gdp is private consumption. In this paradigm, reducing joblessness depends primarily on increasing private consumption, indebtedness rather than saving. Seems to me like a pretty sick way to build our livelihoods. Reducing unemployment depends primarily on private indebtedness? It doesn’t compute. How do we construct economies based on human conservation rather than on spending? ‘Tis a puzzlement. L&p hal
