WEBVTT - What the Heck is GDP?

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<v Speaker 1>Welcome to brain Stuff from How Stuff Works. Hey, brain Stuff,

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<v Speaker 1>it's Christian Seger. Okay, let's say you've just gotten a job.

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<v Speaker 1>Offer to work in the majestic country of bum Sylvania. Awesome, right,

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<v Speaker 1>You've always wanted to live amongst the scenic bum Sylvanian

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<v Speaker 1>swamp lands, and here the local ghost toads sing their

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<v Speaker 1>famous mating screech. But before you pony up the five

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<v Speaker 1>forty nine cents for Rosetta Stone bump Sylvanian Edition, you

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<v Speaker 1>want to do a little research on the economic health

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<v Speaker 1>of this country. So you ask your friend, the economics professor, Hey,

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

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<v Speaker 1>one number that will almost definitely figure into her reply

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

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<v Speaker 1>domestic product. G d P is a common measure that's

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

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<v Speaker 1>The way you calculate g d P is both simple

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<v Speaker 1>as a general principle and complicated in the details. The

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<v Speaker 1>simple version is that GDP is the value of all

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<v Speaker 1>the goods and services produced within a country in a

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<v Speaker 1>given period of time, such as a financial quarter or

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<v Speaker 1>a year. So if we look at bum Sylvania, we

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<v Speaker 1>can calculate its yearly GDP by adding up the dollar

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<v Speaker 1>value of all the stuff it creates, all the pork sandwiches,

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<v Speaker 1>shoe shines, fashion magazines, bullets, massages, motorcycles, jiu jitsu classes,

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<v Speaker 1>ghost toad swamp tours, and of course, traditional Bumpsylvanian style

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<v Speaker 1>wooden hats. Every item, product, or service brought to market

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<v Speaker 1>by workers or other economic resources located inside the country

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<v Speaker 1>in that year is part of the g d P.

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<v Speaker 1>Of course, coming up with this figure is not as

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<v Speaker 1>easy as it sounds. GDP is actually a highly complex

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<v Speaker 1>and abstract statistical instrument that takes some real work to calculate.

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<v Speaker 1>Just one example of the many complications. Let's say somebody

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<v Speaker 1>cuts down some swamp trees and turns those trees into lumber,

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<v Speaker 1>and then sells that lumber to a haberdasher who turns

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<v Speaker 1>it into a traditional bump Sylvanian style wooden hat. Do

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<v Speaker 1>you count the sales of both the lumber and the hat? Well, no,

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

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

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

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

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

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<v Speaker 1>final value of that gorgeous, gorgeous head CEAR. G d

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<v Speaker 1>P is probably the most important measure of the size

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

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<v Speaker 1>There's 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 bump Sylvania's g n P, but not it's

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

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

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

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<v Speaker 1>and most other countries. While g d P is a

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<v Speaker 1>widely used indicator of economic strength, many critics point out

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<v Speaker 1>that it's not necessarily the best indicator of the real

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<v Speaker 1>health of a nation. For example, a country with a

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<v Speaker 1>large growing g d P might look strong on paper,

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<v Speaker 1>but what if that number is masking vast income inequality

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<v Speaker 1>a productive economy based on huge amounts of, say, low

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<v Speaker 1>wage labor. Of course, by comparing g d P with

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<v Speaker 1>other pieces of data, you can do more with the figure.

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<v Speaker 1>A simple example would be comparing g d P with

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<v Speaker 1>population to come up with per capita GDP, which means

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<v Speaker 1>economic value per person. So, for example, according to the

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<v Speaker 1>World Bank in tween, China's GDP was a massive nine

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<v Speaker 1>point two trillion dollars. Compare that to Luxembourg's relatively small

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<v Speaker 1>g d P of sixty billion dollars. Yet in the

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<v Speaker 1>same year, China's GDP per capita was only about six thousand,

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<v Speaker 1>eight hundred dollars, while Luxembourg's was more than sixteen times

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<v Speaker 1>that at about one hundred and ten thousand dollars. So,

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<v Speaker 1>while China's a economy is certainly much larger, it looks

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<v Speaker 1>like each individual citizen on average is better off in Luxembourg.

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<v Speaker 1>Financially speaking. Methods check out the brain stuff channel on YouTube,

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<v Speaker 1>and for more on this and thousands of other topics,

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<v Speaker 1>visit how stuff works dot com.