Today we will study the concept of GDP. Specifically, we will distinguish between nominal GDP and real GDP and explain why real GDP is a better measure of economic performance. This page contains all the information you need for today's class: homework, the problem of the day, helpful resources (videos, podcasts, etc.) and an explanation of the activities we will do in class. Use the table of contents on the right to help you navigate.
Read Mankiw (Pages 491-526) and Thomas (Chapter 7) and watch the following videos.
Lecture
Problem of the Day (optional)
Define GDP.
Explain each of the following in regards to GDP:
Why an economy's income must equal its expenditure.
Why transfer payments are excluded.
Why including transactions of used goods make GDP a less informative measure of economic well-being.
Why it is desirable for a country to have a large GDP, giving an example of something that would raise GDP and yet be undesirable.
Freakonomics Podcast on the Shadow Economy: Official measures of GDP do not capture much of the activity that goes on in the economy. Much of what is missed takes place in black (illegal) markets or is just never reported to the government. This Freakonomics podcast discusses these activities.
Related Readings