What is Gross Domestic Product?
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0:00 - 0:03♪ [music] ♪
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0:12 - 0:15- [Narrator] What is
gross domestic product, -
0:15 - 0:17otherwise known as GDP?
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0:17 - 0:23Gross domestic product is the market value
of all finished goods and services -
0:23 - 0:25produced within a country in a year.
-
0:30 - 0:32Think about the economy
like a giant supermarket -
0:32 - 0:35filled with millions of goods
like dresses, and washing machines, -
0:35 - 0:38and services
like dog walking and massages. -
0:39 - 0:44Every time a finished good
or service is sold, we ring up the price. -
0:45 - 0:49At the end of the year,
we ring up the total -- that's the GDP. -
0:49 - 0:52Let's look more closely
at some of the details. -
0:52 - 0:54Notice that we said GDP
is the market value -
0:54 - 0:56of all finished goods and services.
-
0:56 - 0:58A finished good or service is one
-
0:58 - 1:01that will not be sold again
as part of some other good. -
1:01 - 1:04When a bakery buys
flour, eggs, and butter, -
1:04 - 1:08we don't count these sales in GDP
because these goods aren't finished. -
1:08 - 1:11They are intermediate goods that,
when combined, will become -
1:11 - 1:14a finished good - a cake, for example.
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1:14 - 1:17But, if a consumer buys an egg
to make an omelet, -
1:17 - 1:18the egg is a finished good
-
1:18 - 1:21because it won't be sold again
as part of some other good. -
1:21 - 1:24In other words, our GDP supermarket
is like a real supermarket. -
1:24 - 1:27At the GDP register, we ring up
the eggs sold to consumers, -
1:27 - 1:31and the cakes, but we don't ring up
the eggs the baker used to make the cake. -
1:33 - 1:36There are also goods
that are used to make other goods, -
1:36 - 1:41but are still considered finished goods.
These are called capital goods. -
1:41 - 1:44If Caterpillar produces a tractor
and sells it to a farm, -
1:44 - 1:47the tractor is considered a finished good.
-
1:47 - 1:51The tractor is finished
and its value is added to the GDP. -
1:51 - 1:54Although the tractor is used
to make other goods, -
1:54 - 1:57it won't be sold again
as part of another good, -
1:57 - 1:59so the tractor is still a finished good.
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2:00 - 2:03♪ [music] ♪
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2:03 - 2:06The GDP is the market value
of all finished goods and services -
2:06 - 2:10produced within a country in a year.
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2:10 - 2:12GDP only counts production.
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2:12 - 2:16If an old house is sold this year,
that doesn't add to GDP -
2:16 - 2:21since the house wasn't produced this year.
Only the sale of new houses add to GDP. -
2:22 - 2:24♪ [music] ♪
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2:27 - 2:32GDP also only counts goods and services
produced within a country. -
2:32 - 2:35If you buy a bottle of wine
imported from France, -
2:35 - 2:39that adds to France's GDP,
not to U.S. GDP. -
2:39 - 2:41On the other hand, a computer
produced in the United States -
2:41 - 2:45and exported to France
adds to the U.S. GDP. -
2:45 - 2:47♪ [music] ♪
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2:51 - 2:53Let's go back to the definition
one more time, -
2:53 - 2:56to see some of the limits of GDP
as a measure of economic production. -
2:56 - 2:59GDP is the market value
of all finished goods and services -
2:59 - 3:02produced within a country in a year.
-
3:02 - 3:05If a good isn't bought
and sold in a market, -
3:05 - 3:07then it's not typically counted in GDP.
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3:07 - 3:10Why not? Counting the market value
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3:10 - 3:13of, say, all the breakfast cereal
produced in the U.S. is easy, -
3:13 - 3:14at least in principle.
-
3:14 - 3:18Just add up the price every time
a box of cereal is sold. -
3:18 - 3:22Since market prices are observable,
every statistician who counts carefully -
3:22 - 3:24will come up with pretty much
the same number. -
3:24 - 3:28But, without market prices,
there's no easy or agreed upon way -
3:28 - 3:30to calculate how much a good is worth.
-
3:30 - 3:34Polar bears, for example,
aren't counted in GDP. -
3:34 - 3:36The statisticians and economists
who calculate GDP -
3:36 - 3:38have nothing against polar bears.
-
3:38 - 3:43The problem is that there's no easy way
to calculate how valuable polar bears are. -
3:44 - 3:46Just because GDP
doesn't include polar bears -
3:46 - 3:49doesn't mean that
we can't love polar bears. -
3:49 - 3:51And if polar bears were included in GDP,
-
3:51 - 3:54that wouldn't require us
to love polar bears either. -
3:54 - 3:58Ultimately, GDP is just a number.
But it's a useful number. -
3:58 - 4:01In the next few videos, we'll show
how the GDP number can be used -
4:01 - 4:03as a measure of the standard of living.
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4:03 - 4:07But for that, we'll have to make
a distinction between the Nominal GDP, -
4:07 - 4:11what we have just discussed so far,
and Real GDP. So stay tuned. -
4:13 - 4:16- [Narrator] If you want to test yourself,
click "Practice Questions." -
4:16 - 4:20Or, if you're ready to move on,
you can click "Go to the Next Video." -
4:23 - 4:26You can also visit MRUniversity.com
-
4:26 - 4:29to see our entire library
of videos and resources. -
4:29 - 4:31♪ [music] ♪
- Title:
- What is Gross Domestic Product?
- Description:
-
Picture the economy as a giant supermarket, with billions of goods and services inside. At the checkout line, you watch as the cashier rings up the price for each finished good or service sold. What have you just observed?
The cashier is computing a very important number: gross domestic product, or GDP.
GDP is the market value of all finished goods and services, produced within a country in a year.
But, what does "market value" mean? And what defines a "finished good"?
These, and more questions, percolate inside your head. Meanwhile, the cashier starts ringing up the total, and you’re left confused. An array of things pass by you — A bottle of wine. A carton of eggs. A cake from the local bakers. A tractor, of all things. A bunch of ballpens. A bag of flour.
In this video, join us as we show you how to make sense of this important economic indicator. You’ll learn how GDP is computed, and you’ll get answers to some pretty interesting questions along the way.
Questions like, “Why are the eggs in my homemade omelet part of the GDP, but the eggs my baker uses are not? Why does my bottle of French wine contribute to France’s GDP, even if I bought it in the United States?”
Most importantly, you’ll also learn why polar bears aren’t part of the GDP computation, even if they’re incredibly cute.
So, buckle in for a bit—in the following videos we’ll dive into specifics on GDP.
Macroeconomics Course: http://mruniversity.com/courses/principles-economics-macroeconomics
Ask a question about the video: http://mruniversity.com/courses/principles-economics-macroeconomics/gross-domestic-product-definition-gdp#QandA
- Video Language:
- English
- Team:
- Marginal Revolution University
- Project:
- Macro
- Duration:
- 04:36
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