Components of GDP | GDP: Measuring national income | Macroeconomics | Khan Academy
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Components of GDP | GDP: Measuring national income | Macroeconomics | Khan Academy

What I want to do in this video
is take an expenditure view of GDP, so that we can think
about how GDP can be accounted for, how it can be
measured, and how we can see how active the
different parts of an economy actually are. So GDP, market value of all
final goods and services produced, not just
changed hands, produced within a country
in a given period. And the symbol we use for
GDP, and I don’t know why, but the symbol is Y. Y is GDP. And so let’s think about it from
an expenditure point of view, to think about what
are all the pieces. Well, if we’re thinking
about expenditure, who are all of the players
that might have spent money on the goods and services,
on final goods and services, produced in our country? Who are all the people
that might have done it? Well, you could have your firms. The firms might have spent money
on these goods and services produced in a country. You also have your households. They obviously could’ve
spent some money on goods and services
produced in this country. Then you also have
in most countries, in fact in all countries,
you have the government. The government could have
spent some of the money on the goods and services
produced in this country. And if we assume that we’re
trading with other countries, there are other countries
that might have spent money on goods and services. Other, outside, so let’s
just write foreign. People outside of the country
might have spent money on goods and services,
so foreign purchases. And another way to
think about this would have been this is exports. Our country is exporting it to
people outside of the country and they are purchasing it. Now, this is almost complete. But if we looked
at all of the money that firms are spending and all
the money that households are spending and all the money
that governments are spending, some of what they’re
spending might not be on goods and services that
are produced in this country. They might be spending
some of their stuff on things that are produced
outside of this country. So we would have
to subtract it out if we really want to have the
goods and services produced within the country. So what we’re
going to want to do is subtract out
foreign products. Or another way, the more typical
way of thinking about it, we would subtract out imports. So if we think about all of
the goods and services that meet this classification,
the final goods and services produced in a country
in a given time, that firms spent
money on, and add that to all the goods and services
that households spent money on, and add that to all the goods
and services that government spent on, and all the goods and
services that were purchased by foreigners, the
exports, and then make sure we’re not counting
the goods and services that other countries produce–
so we subtract those out– this would give you a
pretty good measure of all of the goods and services
produced within a country. And this is pretty close to
the way the economists actually do measure it. So what they do is they say
Y is equal to investment. And we saw in a previous
video, investment in the macroeconomics
term isn’t quite what it means in
the everyday term. It really essentially means
the spending by firms. So pretty much everything
that a firm spends in theory, you’re spending that money to
make future goods and services, or to make the
goods and services– so that’s all
considered investment. And then a little bit of
the household spending is considered investment. And that is just new houses. But the bulk of
household spending is considered to be consumption. And then everything that
the government spends on, whether it’s the military and
all the salaries for police people and whatever
they do, you know, the groundskeeping
at the White House, whatever else, if we
thinking about the US, that goes straight to G,
government spending. And this thing
right over here, you have foreign purchases,
exports, minus foreign imports. So you have exports
minus imports. So you could view
this as net exports. If this number is positive,
the net exports are positive. We’re exporting more
than we’re importing. If this number is negative,
net exports is negative. That means we are importing
more than we are exporting. But in traditional
expenditure view of GDP, this whole part
right over here will be referred to as net exports. And so you sum up these things,
which are very closely related to maybe the slightly
more intuitive versions that we started off
with, and you essentially have broken down the
expenditure view of GDP in the traditional sense. Then in the next few
videos, I’m going to start thinking of a
bunch of different examples. And we’ll think about which
bucket it would fall into or how it would affect
one of these buckets.

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31 thoughts on “Components of GDP | GDP: Measuring national income | Macroeconomics | Khan Academy

  1. Including government expenditures in GDP is retarded if you are looking for a metric that denotes how prosperous and productive a country is. Because none of the money it spends comes from the market, and because all of things it buys are useless as far as improving the lives of consumers are concerned, it creates a false sense of prosperity to include government spending in metrics that supposedly provide a measure of prosperity.

  2. So by your logic a country with a government that levies high taxes and spends little to nothing, should be equally as prosperous as one that spends most of what it takes in.

  3. Please underline exactly how government expenditure is "useless" at improving the lives of consumers. Correct me if I'm wrong, but isn't that EXACTLY what government expenditure is ultimately for albeit in the short or long term.

  4. Sorry one last question. If GM sells a car for 1000 dollars then the second hand shop sells it for 1500? would GDP count the 500 as a service so the total gdp would be 1500? Thanks 😉

  5. A few mixups between income and exp approaches in comments below. @marc If gov pays the salary then it is considered "g". @userlous : it only counts as "c" because it is the consumer "expending". If GM invested in Property/Plant equip then it would be I. @menogoth no: high taxes and spends nothing would not is not necessarily equally prosperous, depends on other components…high taxes reduces "c" because it lowers disposable income, and if govn't doesn't spend…Then G is not impacted..

  6. cont: in Keynesian econ, this would be putting brakes on the economy if overheated and part of fiscal policy. @kyle your econ class used (G-T) to account for taxes? ok, not sure the lesson was grasped, unless prof was trying to illustrate another point…no clue what. G-T implies Gov't spending minus taxes. It simply reduces the disposable income but it's is still only EXPENDITURE that counts. $100 salary less $20 in taxes=$80–he spends all. C=80 Government spends all tax…G=20. GDP 100

  7. @Sues.. don't include Government? well, i take it you are using a Classical Approach rationale that government takes away from the productive private sector. But as an illustration in most recent crisis and use a little logic. Corps healthy and sitting huge pile of cash. Should they spend on PPE or salaries if "C" isn't buying. (and C is 2/3 of GDP) So what do they do to the cash? They issue bonds at record low and buy back own stock at record lows… impact on GDP and jobs? zip

  8. No, only the value of that GM sold is counted because if that gm is sold second hand then that is just an exchange between two individuals. That would be double counting if so ever calculated

  9. Well I've been studying a lot for the past months using your website and I'm on my way to an entrance exam and watching this video on the train. I wanna thank you for all your videos and the knowledge you share!

  10. This guy repeats himself over and over until he finally writes it down. It's infuriating. Very knowledgeable, but very annoying.

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