Study Note - Introduction to GDP

GDP includes the output of foreign owned businesses that are located in the UK following foreign direct investment. For example, the output produced at the Nissan car plant on Tyne and Wear and by foreign owned restaurants and banks all contribute to the UK’s GDP.

National Output = National Expenditure (Aggregate Demand) = National Income

(i) The Expenditure Method - aggregate demand (AD)

The full equation for GDP using this approach is GDP = C + I + G + (X-M) where
  C: Household spending
  I: Capital Investment spending
  G: Government spending
  X: Exports of Goods and Services
  M: Imports of Goods and Services

The Income Method – adding factor incomes

Here GDP is the sum of the incomes earned through the production of goods and services. This is:

Income from people in jobs and in self-employment   +   Profits of private sector businesses
  +   Rent income from the ownership of land
  =   Gross Domestic product (by factor incomes)

Only those incomes that are come from the production of goods and services are included in the calculation of GDP by the income approach. We exclude:

 
• Transfer payments e.g. the state pension; income support for families on low incomes; the Jobseekers’ Allowance for the unemployed and welfare assistance such housing benefit.
 
• Private transfers of money from one individual to another
 
• Income not registered with the Inland Revenue or Customs and Excise. Every year, billions of pounds worth of activity is not declared to the tax authorities. This is known as the shadow economy or black economy.  According to a World Bank report published in October 2010, the average size of the shadow economy (as a percentage of "official" gross domestic product) in Sub-Saharan Africa is 38.4 percent; in Europe and Central Asia (mostly transition countries), it is 36.5 percent, and in high-income OECD countries, it is 13.5 percent.

Published figures for GDP by factor incomes will be inaccurate because much activity is not officially recorded – including subsistence farming, barter transactions and the share economy mentioned above.

Unit 2 Macro: Cyclical and Structural Economic Issues Facing the UK [23 May 2012]
Unit 2 Macro: Positive and Negative Multiplier Effects [20 May 2012]
Unit 2 Macro: The Importance of Productivity [20 May 2012]
Unit 2 Macro: Human Development Index (HDI) [20 May 2012]
Q&A: What do we need to know about output gaps? [20 May 2012]
Unit 2 Macro: The Output Gap [20 May 2012]
Revision notes on unemployment [20 May 2012]
Unit 2 Macro: Bank Cuts UK growth Forecast for 2012 [16 May 2012]
Unit 2 Macro: Government Spending [11 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 2 Macro: Model answer for revision data question [9 May 2012]
Made in China - but not quite so cheaply…... [7 May 2012]
Unit 2 Macro: Growth and Development Glossary [5 May 2012]
Unit 2 Macro: Trade and Balance of Payments Glossary [5 May 2012]
Unit 2 Macro: Fiscal Policy Glossary [5 May 2012]
Unit 2 Macro: Economic Cycle Glossary [5 May 2012]
Unit 2 Macro: Aggregate Demand Glossary [5 May 2012]
Macro Revision - Key Statistics on the UK Economy [4 May 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Unit 2 Macro: Britain back in Recession [29 Apr 2012]
Unit 4 Macro: Managing the Global Commons - Limits to GDP [15 Apr 2012]
Unit 2 Macro: The UK Balance of Payments in 2011 [4 Apr 2012]
Unit 4 Macro: Productivity Improvements in China [3 Apr 2012]
Unit 2 Macro: Revision on Real Economic Data [2 Apr 2012]
Unit 2 Macro: Gross National Happiness in Bhutan [31 Mar 2012]
Posen on slower growth in the UK compared to the USA [30 Mar 2012]
Global Economy- the 2012 BRICS Summit [28 Mar 2012]
Life in the Slow Lane - UK Growth in 2011 Lags the Euro Area [28 Mar 2012]
George Buckley at the Millfield Economics Society [28 Mar 2012]
Beyond the Bike - Monetary Policy in Africa [28 Mar 2012]
Where does my money go? [20 Mar 2012]
Evidence of the dangers of protectionism [9 Mar 2012]
Unit 2 Macro: Policies to Drive Economic Recovery [9 Mar 2012]
Unit 2 Macro: The Dash for Gas in Mozambique [17 Feb 2012]
Unit 2 Macro: Is the UK Economy Turning a Corner? [15 Feb 2012]
Unit 1 Micro: Public Goods [11 Feb 2012]
Unit 2 Macro: China’s Trade Engine is Spluttering [10 Feb 2012]
Competitiveness [8 Feb 2012]
Unit 2 Macro: Growth and Development - Some Indicators [30 Jan 2012]
Unit 4 Macro: Focus on India - Comparative Advantage [27 Jan 2012]
Unit 2 Macro: Focus on China - Trade and Growth [27 Jan 2012]
Unit 2 Macro: Focus on China - Carbon Emissions and Growth [26 Jan 2012]
Unit 2 Macro: Focus on China - Per Capita Incomes [26 Jan 2012]
Unit 2 Macro: Focus on China - Changing Economic Structure [26 Jan 2012]
Unit 4 Macro: Focus on India - Economic Growth [24 Jan 2012]
Unit 2 Macro: Exporting to the Booming Chinese Economy [23 Jan 2012]
Unit 4 Macro: Russia Joins the WTO [22 Jan 2012]
Unit 4 Macro: Time to Re-Boot the British Economy [14 Jan 2012]
Unit 4 Macro: Competitive Advantage in Trade (Some Videos) [12 Jan 2012]
Unit 1 Micro: Capital used to Build Cross Rail [11 Jan 2012]
Unit 4 Macro: UK Trade Patterns [11 Jan 2012]
Unit 2 Macro: Factors Driving Business Investment [10 Jan 2012]
2011 in Review - The US Economy [27 Dec 2011]
Unit 2 Macro: Brazil Overtakes UK in Economic Size [26 Dec 2011]
Ten Things About Tax [23 Nov 2011]
Where is the UK Economy? National Output [22 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
AS and A2 Macro: GDP resources from Planet Money [31 Oct 2011]
How do you spend £691.7bn? [30 Oct 2011]
Unit 2 Macro: Analysing Government Spending Cuts [25 Oct 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
Keynes Prize: The Economics of Cities (2) [13 Oct 2011]
Unit 2 Macro: Can Exports Drive a Recovery? [13 Oct 2011]
Keynes Prize: The Economics of Cities (1) [12 Oct 2011]
Unit 2 Macro: UK suffers a weak recovery [12 Oct 2011]
Unit 2 Macro: Consumer Spending Charts for the UK [3 Oct 2011]
Unit 2 Macro: Exercise on National income [27 Sep 2011]
Unit 4 Macro: Greek Economy at Default’s Door [25 Sep 2011]
Unit 4 Macro: IMF Flags up Risks of Double Dip [20 Sep 2011]
Study Note - Measuring national income [16 Sep 2011]
Study Note - Value Added and Contributions to a Nation’s GDP [16 Sep 2011]
Study Note - The Circular Flow of Income [15 Sep 2011]
Unit 2 Macro: Economic Growth and Inequality [14 Sep 2011]
Study Note - What is Macroeconomics? [13 Sep 2011]
Unit 2 Macro: Value Added in Production and GDP [11 Sep 2011]
Unit 4 Macro: GDP per person since the credit crunch [19 Aug 2011]
Unit 1 Micro: Economics of Volatile Corn Prices [12 Jul 2011]
Unit 3 Micro: Motorsport Valley and External Economies of Scale [12 Jul 2011]
UK firms wake up to Brazilian opportunities [21 Jun 2011]
Do you agree that the government should provide support to the UK car industry? [12 Jun 2011]
Invisible Exports - Originating Journalist is remembered [27 May 2011]
AS Macro Key Term: Demand Pull Inflation [24 May 2011]
AS Macro Key Term: Deflation [24 May 2011]
AS Macro Key Term: Trend Growth [23 May 2011]
AS Macro Key Term: Recession [23 May 2011]
AS Macro: GDP Projections [19 May 2011]
EU Economics: Comparing the UK with Europe [14 May 2011]
UK Economy Update: What Mervyn Said [11 May 2011]
Macroeconomics revision - measuring Consumer Confidence [4 May 2011]
AS and A2 Macro Revision: Keynesian Economics [28 Apr 2011]
AS and A2 Macro Revision: The China Effect [26 Apr 2011]
AS Macro: Essay Plan on Rising Imports [24 Apr 2011]
Australia Booming Ahead [21 Apr 2011]
Rise in investment could kick start recovery [18 Apr 2011]
China set to become exporter of inflation [14 Apr 2011]
A2 Macro: Back to Roubini - a Year On! [11 Apr 2011]
AS Macro Key Term: Double-Dip Recession [8 Apr 2011]
AS Macro Key Term: Jobless Recovery [8 Apr 2011]
AS Macro Key Term: Gross National Income (GNI) [7 Apr 2011]
AS Macro Key Term: Economic Structure [6 Apr 2011]

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