Growth and GDP

Value added, the three approaches to GDP, GDP in value and volume, growth and its sources, and the limits of GDP as a measure of well-being.

The outline, topic by topic

Each topic is weighted the way the exam weighs it.

Value added: what is it?
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The value of a firm's output minus the value of the intermediate consumption it used.
It measures what the firm creates itself. A baker selling €250 of bread made with €150 of flour creates €100 of value added.
Why does a private resale of a used car not add to GDP?
- It creates no new output: the car was already counted
- Exchanges between individuals escape national accounts
- The price of a used car is too hard to measure
- It is counted in place of the equivalent new car
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It creates no new output: the car was already counted
GDP measures the year's output, not changes of ownership. The car was counted the year it was made; only a dealer's commission would be new output.
GDP can be computed in three equivalent ways: by … (sum of value added), by … (final spending) and by … distributed.
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GDP can be computed in three equivalent ways: by output (sum of value added), by demand (final spending) and by income distributed.
Value added necessarily creates an income (wages, profits) and necessarily meets spending that buys it: the three approaches give the same total.
Gross domestic product (GDP): what is it?
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The sum of the value added created in the territory during a year by resident units, excluding intermediate consumption.
The test is territory, not nationality: a Japanese group's plant in France counts in French GDP, a French group's plant in Brazil does not.