Thursday, June 25, 2009

Gross Domestic Product

In econ today, we talked about how economists calculate GDP, the total income of a nation. In fact, while for workers, income might be how much they make, for a nation's economy, the "income" must be equal to the expenditures in order for an equal and balanced market to exist. Also, GDP only takes into account the income and expenditures that take place using the nation's resources. It's divided into Consumption, Investment, Government Purchases, and Net Exports; Net Exports is the #Imports - #Exports. So if Sally was buying an American made car, the amount of money she pays goes into the Consumption part of the equation. However, if she bought a car in America that was built in Japan, whatever the cost it took to ship the car over goes into Net Exports and the rest into Consumption.

The thing about GDP is that it doesn't tell us anything about quality of life nor the quality of anything for that matter. It merely tells us how much a country is worth based on the market value of its goods and services. However, GDP may rise over the years due to inflation, so there are actually two types of GDP; Real GDP and Nominal GDP. Nominal GDP is the "normal" way of looking at GDP. It only looks at the current year and calculates it using prices and quantities from the current year. On the other hand, Real GDP is a better way of comparing GDP across years of production.

If say I calculated the GDP for 2004. If I wanted to calculate the real GDP of 2005. I would use the prices that were in 2004 but use the quantities that were produced in 2005. That way, I can see how the change in production changed prices.

Two topics trended throughout the day. SAT scores in the morning and Michael Jackson's passing away in the afternoon, which eclipsed the news of Farrah Fawcett's death. It was fascinating to see how fast the news spread to everyone during dinner, jumping from table to table. Maybe I should have joined the Human Behavior class that they offered here!

In any case, our teacher let us know about a presentation that we're doing at the end of the course on an economic topic of our choosing. I decided to look into Water Privatization in 3rd world countries. What led me to it was the idea that water is getting scarce in parts of the world and the realization that wars are being fought over rights to wells. It's something that I want to know more about.

I'm looking forward to seeing some colleges this weekend!


Charles Tillman Ramsey said...

So am I. I am very excited to take the group out for a tour of local area Universities. I am glad that you are doing well and handling the course. The one thing that would be useful for me in reading your posts is to see how you feel your experience here at Brown compares to the time that you had last year at Columbia.

Yes, human beings shift conversations very fast and Michael Jackson has a special place in the history of this country and in this world. He actually touches a lot of cultural moments in time. His very early years cover a time of conflict in this country and his rise through Motown Records is a day when the communities of Black and White did not cross much.

His career then as it was defined in those days "crossed over" into what Whites characterized as main stream music. His music was always accepted in the black community, but that is a different discussion for a different day, I have to get on this plane to see you tomorrow.

Anyway, continue to discuss not just your class, but what you see with the two campuses of Brown and Columbia.

Take care.

Charles T. Ramsey, Esq.
School Board Member
West Contra Costa
Unified School District

Don Gosney said...


It used to be far easier to calculate and interpret GDPs but in today's economy we've tried to embrace a world market so much that the infusion of imports and exports confuses things.

While it may seem that the reason for importing so much of what we buy was done solely so corporations could maximize profits--and that wouldn't be far off--one of the main reasons for all of these trade agreements is that it helps stabilize the world and prevents wars (and even revolutions).

Because the economies of China and the US are so intertwined these days do you think that either could afford to go to war against each other? And even in our defense industries, we have so many of our products made overseas (electronics, steel, textiles, etc.) that we would be hard pressed to mobilize if we had to do without those products from the other countries. Even shipping is owned by other countries so in the event of a war, how would we get our products back and forth?

I'm betting that much more of yesterday's discussions revolved around Michael Jackson than they did of Farrah Fawcett. Even though MJ became a hit 40 years ago while FF was big 35 years ago (LONG before any of you were around to witness their fire), MJ remained a star in some form or fashion even if it was merely as the crazy guy showing up in news reports all of the time.

And while you might be able to find reruns of Charlie's Angels (the TV show), it's pretty easy to find music videos and CDs of MJ.