What measures primarily the economys performance?

Aggregate output the annual total output of goods and services.

Gross Domestic Product (GDP)

- Key concept in the national income and product accounts.

the total market value of all final goods and

services produced within a given period by
factors of production located within a country,
regardless who owns the factors of production

Explanation of GDPs Definition

2014
2015

It has monetary value

Exclusions of non production transactions

1. Public transfer payments
SSS, veterans benefit and welfare benefits are not counted
in GDP.
Transfer payments
Cash payments paid by the government to the
people who do not supply labor, goods in
exchange of payments

Final goods

Intermediate goods
are produced by one firm for use in
the further processing by another firm.
For example tires sold to automobile
manufacturers.

goods and services

produced for final use.

To avoid double counting or multiple counting

The difference between the value of goods as they leave a stage of

production and the cost of the goods as they entered that stage.

.For ex. Suppose that in producing a car

General motors pays $100 to Goodyear for
tires to assemble a car, which it sells for
$12,000. The value of the car including
the tires is $12,000, not $12,000 + $100.

Value Added in the Production of a Gallon of

Gasoline

Stage of
Production
1.) Oil Drilling
2.) Refining
3.) Shipping
4.) Retail Sale
Total value
added

Value of Sales
$ .50
.65
.80
1.00

Value Added
$ .50
.15
.15
.20
$ 1.00

 In calculating GDP, we can either

sum up the value added at each
stage of production or we can
take the value of final sales. We
do not use the value of total
sales in an economy to measure
how much output has been
produced.
Stage of Production
1.) Oil Drilling
2.) Refining
Total
value added
3.) Shipping
4.) Retail Sale

Value of Sales
$ .50
.65
.80
1.00
$2.95

Value Added
$ .50
.15
$ 1.00
.15
.20

Sales Value and

Value Added at each
stage of Production

A farmer purchases a
pennys worth of fertilizer
and seed which are used
as factors of production in
growing wheat. The
farmer grows the wheat,
harvest it and sells it to a
miller for $.02, the flour
miller purchases the
wheat for $.02 and sells it
to Donut baker at $ .04.
The Donut baker sells it to
the retailer at $.10 and the
retailer sells it to
consumer at $.15

Value Added in the Production

of Donut

Stage of
Production

Value of Sales

Value Added

$ .01

$ .01

2.) Harvesting

.02

. 01

3.) Milling

.04

.02

4.) Baking
5.) Retail sale

.10
.15

.06
.05

1.) Growing stage

Total value
added

$ .15

Private transfer payments

Cash gifts like Christmas gift is not counted in GDP

Value Added in the production of oranges:

A farmer plants orange seeds that costs him

P1.00, after the harvests he sells the oranges to
a processor at P1.50, the next step is to look for
distributor of the juice (wholesaler) sells it to
retailer at P2.25, and the retailer sells the juice to
consumers at P3.50.

Paper assets

 Exclusion of used goods .

GDP is concerned only with new, or

current production.

 Exclusion of output produced abroad by

domestically owned factors of production.

GDP is the value of output produced by

factors of production located within a
country.