Video Transcript: Lesson 1

Hi, welcome to Principles of Macroeconomics. This is Unit One, Video Lesson  One. Gross Domestic Product, or GDP, is the topic we'll be discussing in this  video. The primary measure of the total economic activity of a nation is known  as gross domestic product. So let's think about what the total economic activity  of a nation is. All industry sectors, manufacturing, service-related, automotive,  anything like that that is developed inside a nation's borders and then sold,  generating revenue inside that industry is then compiled and added together to  give you the sum or the gross domestic product. So the United States has a  very large domestic product. Maybe closely second is China. The United States  has been battling over the last decade, to maintain the number one GDP in the  in the world, we've seen that kind of fluctuate back and forth between China and the United States recently in 2018, 17, 16, with a threat of China potentially  taking over the United States, creating the having the largest economy and the  greatest GDP in the world, the United States, through some measures taken  through the Congress in 2018 in lowering tax taxes for corporations, has spurred new investment into into the United States, creating more revenue for  businesses to reinvest into their businesses and grow their businesses, which is  going to increase the level of GDP as we manufacture, make more products, sell more goods internationally and domestically, our GDP will increase. So the total  value of a nation's output in the particular period of time, mostly measured  annually, but you can do it by a decade or a century. But you'll see a one-year  period, five-year period, or 10-year period most commonly used. The total value  of a nation's output is the primary definition of GDP. Now we'll look at IB  Economics, okay? International Business Economics, which focuses on the  expenditure approach to the GDP, so you'll see that GDP equals C plus I plus G  plus X minus M. So we can define that as C is consumption, okay, the amount or total quantity that is consumed by a household. Now, the total investment made.  You may invest in the stock market. You may make real estate investments.  Anything of that such will be included into the GDP. Also, government spending  is a component of GDP. So you'll see that social programs, housing  development, urban programs across the United States to help build the  infrastructure for that nation in particular. That spending is also calculated into  the GDP sum number. Now you'll see exports minus imports, so they'll that'll  show your trade deficit or trade surplus. Then your trade surplus or trade deficit  will be a component of GDP as well. So whether you are running a trade surplus or a trade deficit will determine if that factor will increase your GDP or take away from your GDP. Now, the United States currently has rather large trade deficits  with Mexico, China, Europe, etc. Now, for the United States to maintain their  dominance of GDP and world economic output, the United States would  probably be best served to correct that imbalance between the trade surplus  between these international partners, and and let's try to erase that deficit and  create a trade surplus, and that would also boost our overall GDP. So nominal 

GDP measures the value of a nation's out. Produced in a year, expressed in the  value of the price charged for that year. It does not take into account inflation,  right? So nominal GDP is the value of the nation's output produced in that year,  but it does not include inflation. So the real GDP is the value of a nation's output  in a particular year, adjusted for changes in the price level from year to year.  Then, this offers a more accurate measure of the actual quantity of goods and  services a nation produces because it does adjust for price changes. Real GDP,  while a nation's real GDP tells us the actual value of its output in a particular  year adjusted for inflation, it does not tell us whether a nation is more rich or  more poor. So therefore, we have to look at the GDP on a per capita basis. Per  capita means that per individual person. So you would take the GDP number  and you would divide that out by the per capita or the number of people inside  that economy, and then you would take that divided by the total population, and  that gives you the real measure of how rich or wealthy a nation really is. So, why is GDP important? Real GDP is a better indicator of output than nominal GDP.  Real GDP actually adjusts for inflation and price changes, so we have to look at  these price change numbers in order to reflect a more accurate GDP number.  GDP per capita is a better indicator of the well-being of a typical person in a  nation than total GDP. We want to look and see if people per capita, individuals,  are becoming more or less wealthy on an annual basis, year to year, and this  tool of measuring GDP per capita will allow you to identify if these individuals are becoming more wealthy as compared to previous years. Shortcomings of GDP.  It ignores all social aspects of life, so you know welfare, things of that nature  may not always be added into the GDP number. Certain work is not accounted  for, maybe under the table work or anything like that may not be accounted for.  Fewer working hours, the maybe that will be included in the per capita number,  but not always. Does not include hidden markets. GDP does not account for  degradation of the environment, and it does not take into account of equity.