GDP and the Standard of Living

The GDP is the invention of Simon Kuznets, a Russian born immigrant graduate student in a statistics course of Columbia University under the direction of Wesley Clare Mitchell during the Great Depression.  Mr. Mitchell was given a grant to create the kinds of measurements needed by a new department in government, to be called the Commerce Department, the idea of a congressman from Wisconsin named Robert LaFollette, which could keep track of things like income, output, employment, and prices - none of which were officially calculated or recorded at the national level.

Mr. Mitchell asked the right questions, and Simon Kuznets came up with an answer called the circular flow model, which you study in this module.

 5.1   Define GDP and explain why the value of production, income, and expenditure are the same for an economy.

 5.2   Describe how economic statisticians measure GDP in the United States.

 5.1   Define GDP and explain why the value of production, income, and expenditure are the same for an economy.

A.  GDP is the value of production of final goods and services in a given time period.
B.  We can value goods and services by either what it costs to produce (incomes) or what people are willing to pay (expenditures).
C.  The value of production equals income equals expenditure.

 5.2   Describe how economic statisticians measure GDP in the United States.

A.  We measure GDP by summing either expenditures on final goods and services (the expenditure approach) or incomes of all the factors of production (the income approach).
B.  GDP measures expenditure on final goods and services but excludes expenditure on intermediate goods, used goods, and financial assets.
C.  To value the output of a sector, we measure only the sector's value added.

Take the optional post-study bonus point quizzes on GDP and the Standard of Living on Saturday following Module 7.

Take the optional pre-study bonus point quizzes on Jobs and Unemployment on Sunday preceding Module 8.

The IMF is an organization of 184 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.