Gross Domestic Product: Items Excluded From National Production – Video & Lesson Transcript
We’re discussing a nation’s GDP, and it’s important to understand not only what’s contained in the GDP, but also what’s not contained in the GDP. GDP stands for gross domestic product and symbolizes the total production of a country within its home borders. However, there are a few transactions that happen every day that do not get counted in the GDP.
Let’s discuss what’s not contained in the GDP and then take a look at some examples. Basically, for something to be contained in our GDP, it has to be something that is produced actually. It needs to be something that isn’t used to produce something else. It needs to be produced here and not somewhere else, and it needs to be legal also. Let’s say that Kelly, an economist-turned-opera singer, has been invited to sing in the United Kingdom.
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At the same time, an American computer company produces and markets all their computer systems in Germany, while a German company produces and markets all its cars here inside the borders of America. Economists need to know what gets counted and what doesn’t. Only goods and services produced are included within the GDP domestically. That means that goods made by Americans beyond your U.S. GDP. Whenever a singer from America holds a concert overseas, this is not counted.
On the other hand, goods and services produced and sold by foreigners in your home edges are counted in the GDP. Whenever the famous British singer tour throughout the United States or a foreign car company produces and sells cars within the U.S., this production does get counted. No used goods are included. When Jennifer purchases a lawnmower from her father, or Megan resells a written book she received from her father, these transactions are not counted in the GDP. Only newly produced goods – including the ones that increase inventories – are counted in GDP. Sales of used sales and goods from inventories of goods which were stated in previous years are excluded.
Only goods that are produced and sold legally, in addition, are included in your GDP. Which means that goods produced illegally aren’t counted. If there’s a transaction that the truth is taking place in a parking lot with two cars and somebody’s selling stereos, that’s not going to be counted in the GDP.
Governments spend money in the economy, however they send transfer obligations to individuals also. Transfer payments are not counted. A day to day example of a transfer payment will be a welfare check received by a household. When calculating GDP, transfer obligations are excluded because nothing at all gets produced. Money is moved from one group to some other simply.
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