A High School Economics Guide

Supplementary resources for high school students

Definitions and Basics

Gross Domestic Product (GDP), from the Concise Encyclopedia of Economics

Gross domestic product, the official measure of total output of goods and services in the U.S. economy, represents the capstone and grand summary of the world’s best system of economic statistics….

For the United States, GDP replaces gross national product (GNP) as the main measure of production. GDP measures the output of all labor and capital within the U.S. geographical boundary regardless of the residence of that labor or owner of capital. GNP measures the output supplied by residents of the United States regardless of where they live and work or where they own capital. Conceptually, the GDP measure emphasizes production in the United States, while GNP emphasizes U.S. income resulting from production.

GDP is one measure, but not a perfect measure, of the well-being of the citizens of a country. For example, homemaker income is not traded in markets, and so is not included in GDP. (Because stay-at-home moms are not paid salaries, there are no government records for how much output they produce for their families.) Economic Indicators, from the Social Studies Help Center.

The Gross Domestic Product (GDP), is the monetary value of all goods and services performed IN a nation in one year. GDP measures the economic strength of a nation. It is computed by multiplying the quantity of all goods and services by its price. When this is done for all three categories, Consumer spending, Government Spending and Investments, the results are added to give us the GDP.

C + G + I +F = GDP

U.S. Gross Domestic Product (GDP), from the U.S. National Economic Accounts. Bureau of Economic Analysis (BEA, a division of the U.S. Department of Commerce).

[Contains the latest GDP data, definitions, interactive tables for finding data from previous years and quarters, and more.]

Diane Coyle on GDP, EconTalk, April 2014.

Diane Coyle, author of GDP: A Brief but Affectionate History, talks with EconTalk host Russ Roberts about the history of GDP, its uses, and its abuses. Topics discussed include the origins of GDP in the developed countries, the challenges of measuring the service sector, the challenges of dealing with innovation and product diversity, whether GDP should be supplemented with other measures of human well-being, and the challenges of dealing with internet-based goods that produce a great deal of satisfaction but make a much smaller impact on measured economic activity.

In the News and Examples

Gapminder World, at Google.com

Interactive graphic showing correlation between GNP and life expectancy, population, phone use, and much more, by country over a period of years. Select your choice of variables, display styles, and watch the changes over time!

Martha Nussbaum on Creating Capabilities and GDP, EconTalk, September 2014.

Martha Nussbaum of the University of Chicago and author of Creating Capabilities talks with EconTalk host Russ Roberts about an alternative to GDP for measuring economic performance at the national level. She is a proponent of the capabilities approach that emphasizes how easily individuals can acquire skills and use them, as well as the capability to live long and enjoy life. Nussbaum argues that government policy should focus on creating capabilities rather than allowing them to emerge through individual choices and civil society.

GDP Fetishism, by David R. Henderson. Econlib, March 1, 2010.

When economics professors teach the basics of Gross Domestic Product (GDP), we usually caution our students that it is not a good measure of welfare. Unfortunately, many economists go on to give GDP far more credit than it deserves. They tend to consider fiscal and monetary policy positive if these policies increase GDP, but they often fail to ask, let alone answer, whether those same policies increase or reduce welfare. I have a term for giving GDP such a sacred a place in economists’ reasoning: GDP fetishism. If we return to some basic principles of economics, we will avoid GDP fetishism, do better economic analysis, and propose better policies.

A Little History: Primary Sources and References

First measurements of GNP: Simon Kuznets, biography from the Concise Encyclopedia of Economics

Simon Kuznets is best known for his studies of national income and its components. Prior to World War I, measures of GNP were rough guesses at best. No government agency collected data to compute GNP, and no private economic researcher did so systematically, either. Kuznets changed all that. With work that began in the thirties and stretched over decades, Kuznets computed national income back to 1869. He broke it down by industry, by final product, and by use. He also measured the distribution of income between rich and poor.

Advanced Resources

National Income Accounts, from the Concise Encyclopedia of Economics

National income accounts (NIAs) are fundamental aggregate statistics in macroeconomic analysis. The ground-breaking development of national income and systems of NIAs was one of the most far-reaching innovations in applied economics in the early twentieth century. NIAs provide a quantitative basis for choosing and assessing economic policies as well as making possible quantitative macroeconomic modeling and analysis. NIAs cannot substitute for policymakers’ judgment or allow them to evade policy decisions, but they do provide a basis for the objective statement and assessment of economic policies.

Related Topics

Real vs. Nominal

Inflation

Economic Growth

Business Cycles

Saving and Investing

Supply