Economics Lecture Notes: Understanding GDP

Introduction

• Welcome back after the holidays.
• Focus on Chapters 15 and 16, possibly introduction to Chapters 17 and 18 if time allows.
• Lecture structure includes teaching from the textbook followed by past paper questions.

Definition of GDP

• Gross Domestic Product (GDP) is a measure of national income.
• Includes both GDP and GNI (Gross National Income).

Key Elements of GDP

1. Total Market Value

   • GDP refers to the total market value of production.
   • Volunteer work and housework are not included as they have no market value.

2. Production

   • Must be real production, not financial investments (e.g., stocks and bonds).
   • Only final products are counted to avoid double counting with intermediate goods.

3. Resident Producing Units (RPU)

   • Must be a unit engaging in production in an economic territory for at least one year.
   • Example: Foreign domestic helpers with a contract longer than one year.

4. Time Period

   • Usually calculated over a year.
   • Exceptions include long-term infrastructure projects and owner-occupied rental value calculations.

Examples and Exceptions

• Transfer Payments: Not included as they do not involve production.
• Second-hand goods: Not included as they have already been counted.
• Salaries for Services: Counted as they involve service production.
• International Production: Only domestic production counts.

Special Cases

• Owner-occupied housing assumes self-renting, counted in GDP.
• Illegal transactions are theoretically included but practically excluded due to lack of records.

Review Questions

• Example question: Which items count towards Hong Kong's GDP for 2014?
  • Transfer payments do not count.
  • Market value from previous years or foreign entities do not count.
  • Salaries for services provided domestically do count.

Conclusion

• Next lecture will cover past paper questions related to GDP.
• Remember the basic principles: value, production, residency, and time frame.

End of Lecture

• See you in the next video for further clarification and examples.