GDP and Economic GrowthGross Domestic Product (GDP)- Measures the total income of everyone in the economy- Measures the total expenditures on the economy’s output of goods and services- For the economy as a whole, income equals expenditure because every dollar a buyer spends is a dollar of income for the sellerWhy is GDP important?- GDP is used in three ways:o Explore short run fluctuations in the business cycleo Show and compare standards of living across countries Ex: US compared to European countrieso Explore long run economic growth Overtime how has our income changed?Gross Domestic Product (GDP) is: the market value of all final goods and services produced within a country in a given period of time.Avoiding Multiple Counting- Excludes financial transactions o Public transfer payments – Welfare and Social Security Do not count any payments gov’t makes because that is not the final use ofthat payment – people then take that money to buy goods and services. o Private transfer payments – inheritances o Stocks (and bond) market transactions- Excludes secondhand saleso Used car market: person who original bought the car is already included in GDP Society is not benefited by you buying a new car Reselling a car would be considered double countingo Craigslist, EBay, etc. - Excludes items produced in the previous yearo Not in the given time periodo Only include items produced this year to see our productivity for time periodMeasuring GDP- Recall: GDP is total spending - Four components: o Consumption (C): you as a household What goods and services YOU are buyingo Investment (I):  Capital goods – we are going to use to produce more goods and services inthe future- Ex: hammer for construction job – use it to build house in the futureo Government Purchases (G): All spending on goods and services purchased by the government at the federal, state, and local levels.o Net Exports: (NX) Exports – imports Exports represent foreign spending on economy’s goods and services.  Imports are the portions of C, I and G, that are spend on goods and services produced abroad- These four components add up to GDP o GDP (Y) = C + I + G +