WEBVTT - BrainStuff Classics: What the Heck is GDP?

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<v Speaker 1>Welcome to brain Stuff production of iHeart Radio. Hey brain Stuff,

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<v Speaker 1>Lauren voke obam here with a classic episode from our

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<v Speaker 1>earthWhile host Christian Sagar. This one breaks down some very basic,

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<v Speaker 1>yet very complex economic terms for you, g d P

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<v Speaker 1>and g n P. Hey brain Stuff, it's Christian Sagar. Okay.

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<v Speaker 1>Let's say you've just gotten a job offer to work

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<v Speaker 1>in the majestic country of bum Sylvania. Awesome, right, You've

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<v Speaker 1>always wanted to live amongst the scenic bum Sylvanian swamp lands,

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<v Speaker 1>and here the local ghost toads sing their famous mating screech.

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<v Speaker 1>But before you pony up the five forty nine cents

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<v Speaker 1>for Rosetta Stone Bumpsylvanian edition, you want to do a

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<v Speaker 1>little research on the economic health of this country. So

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<v Speaker 1>you ask your friend, the economics professor, Hey, how is

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<v Speaker 1>the economy of bum Sylvania doing these days? Well, one

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<v Speaker 1>number that will almost definitely figure into her apply is

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<v Speaker 1>the country's g d P. This stands for gross domestic product.

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<v Speaker 1>G d P is a common measure that's used to

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<v Speaker 1>roughly represent the size of a country's economy. The way

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<v Speaker 1>you calculate GDP is both simple as a general principle

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<v Speaker 1>and complicated in the details. The simple version is that

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<v Speaker 1>GDP is the value of all the goods and services

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<v Speaker 1>produced within a country in a given period of time,

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<v Speaker 1>such as a financial quarter or a year. So if

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<v Speaker 1>we look at bump Sylvania, we can calculate its yearly

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<v Speaker 1>GDP by adding up the dollar value of all the

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<v Speaker 1>stuff it creates, all the pork, sandwiches, shoe shines, fashion magazines, bullets, massages, motorcycles,

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<v Speaker 1>jiu jitsu classes, ghost toad swamp tours, and of course,

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<v Speaker 1>traditional bump Sylvanian style wooden hats. Every item, product or

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<v Speaker 1>service brought to market by workers or other economic resources

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<v Speaker 1>located inside the country in that year is part of

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<v Speaker 1>the g d P. Of course, coming up with this

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<v Speaker 1>figure is not as easy as it sounds. GDP is

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<v Speaker 1>actually a highly complex and abstract statistical instrument that takes

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<v Speaker 1>some real work to calculate. Just one example of the

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<v Speaker 1>many complications. Let's say somebody cuts down some swamp trees

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<v Speaker 1>and turns those trees into lumber, and then sells that

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<v Speaker 1>lumber to a haberdasher who turns it into a traditional

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<v Speaker 1>bump Sylvanian style wooden hat. Do you count the sales

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<v Speaker 1>of both the lumber and the hat. Well, no, because

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<v Speaker 1>g d P is a measure of the final value

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<v Speaker 1>of goods and services. So if you counted the sale

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<v Speaker 1>of the wood to the hat maker and the sale

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<v Speaker 1>of the hat, you'd be counting the same value twice.

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<v Speaker 1>The value of the wood gets wrapped into the final

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<v Speaker 1>value of that gorgeous, gorgeous head cear. GDP is probably

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<v Speaker 1>the most most important measure of the size and performance

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<v Speaker 1>of an economy, but it's not the only one. There's

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<v Speaker 1>also g n P, which is related but slightly different.

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<v Speaker 1>G n P stands for gross national product. G d

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<v Speaker 1>P is the value of all economic production inside a

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<v Speaker 1>country's borders, no matter who is doing that production. G

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<v Speaker 1>n P, on the other hand, is the value of

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<v Speaker 1>all the products and services produced by a country's residence,

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<v Speaker 1>even if production takes place outside the country. So if

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<v Speaker 1>a bump Sylvanian business has a factory making wooden hats

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<v Speaker 1>in another country, the output of that factory would be

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<v Speaker 1>included in Bumpsylvania's g n P, but not it's g

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<v Speaker 1>d P. Both figures are economically useful, but according to

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<v Speaker 1>the U. S Bureau of Economic Analysis, g d P

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<v Speaker 1>is the primary measure used by the United States and

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<v Speaker 1>most other countries. While GDP is a widely used indicator

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<v Speaker 1>of economic strength, many critics point out that it's not

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<v Speaker 1>necessarily the best indicator of the real health of a nation.

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<v Speaker 1>For example, a country with a large, growing GDP might

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<v Speaker 1>look strong on paper, but what if that number is

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<v Speaker 1>masking vast income, inequality and productive economy based on huge

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<v Speaker 1>amounts of, say, low wage labor. Of course, by comparing

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<v Speaker 1>g d P with other pieces of data, you can

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<v Speaker 1>do more with the figure. A simple example would be

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<v Speaker 1>comparing g d P with population to come up with

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<v Speaker 1>per capita g d P, which means economic value per person. So,

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<v Speaker 1>for example, according to the World Bank, in China's GDP

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<v Speaker 1>was a massive nine point to trillion dollars. Compare that

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<v Speaker 1>to Luxembourg's relatively small g d P of sixty billion dollars.

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<v Speaker 1>Yet in the same year, China's GDP per capita was

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<v Speaker 1>only about six thousand, eight hundred dollars, while Luxembourg's was

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<v Speaker 1>more than sixteen times that at about one hundred and

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<v Speaker 1>ten thousand dollars. So, while China's economy is certainly much larger,

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<v Speaker 1>it looks like each individual citizen on average is better

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<v Speaker 1>off in Luxembourg. Financially speaking, that is. Today's episode was

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<v Speaker 1>written by Joe McCormick and produced by Tyler Klang. To

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<v Speaker 1>hear more from Joe, chat at his podcasts Stuff to

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<v Speaker 1>Blow Your Mind and Invention and for more on this

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<v Speaker 1>and lots of other topics because at how stuff works

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<v Speaker 1>dot com. Brain Stuff is production of iHeart Radio. For

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