WEBVTT

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What I've done here
is listed a bunch

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of events that might
occur in a given period.

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And what I want to think
about in this video

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is how, if at all, they might
be accounted for in GDP,

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especially in this
expenditure view of GDP.

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And I encourage you
to pause this video

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and try it out yourself.

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See how, if each of these
events happen in the period

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for which we are trying
to calculate GDP,

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how would they be accounted
for, according to the buckets

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we thought about, the
composition of the expenditure

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view of GDP.

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So now I'm assuming
that you have unpaused,

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you've tried it yourself, and
so let's try to go through it.

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So Khan Academy is a firm.

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It's a not-for-profit firm.

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No one really owns Khan Academy.

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I guess society owns Khan
Academy, but it is a firm.

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So Khan Academy employs
a software engineer

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and pays them $100,000.

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Well, this is a firm
making the expenditure.

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And arguably and
even conceptually,

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this also is an investment.

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Because this $100,000 is going
to be used to develop code

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that has future benefit.

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So this is going to be
the investment category.

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Let me do it in that same color.

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So I, investment, is going
to get plus $100,000.

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In general, the spending by
firms goes into investment.

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Now, let's look at
the second scenario.

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Accenture, which is
another firm, and this

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is a for-profit firm, earns $10
million-- or maybe I should say

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gets $10 million
in revenue, just

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to be clear what we're
talking about-- by building

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a new IT system for California.

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And the important thing to
think about, you might say,

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oh, OK, wait, this is
OK, Accenture is a firm,

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but California is
clearly the government.

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So how do you account for this?

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And it's the
expenditure view of GDP.

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So in this situation, California
is spending $10 million

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in the period for
a new IT system.

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So this is going
to be government.

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The government category is going
to be increased by $10 million,

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because of this expenditure.

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Now next one.

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My mother sells her
house in New Orleans

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to a Swedish woman for $200,000.

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Once again, a
house is being sold

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from someone in the country
to someone who was foreign,

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what do we do?

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But the important
thing to realize

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is that this is not a new house.

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This is a transfer
of an existing house.

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Nothing was produced here.

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So this has no
contribution to GDP.

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It doesn't matter it's a Swedish
woman or anything like that.

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The house existed before.

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It just changed hands.

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A new house did
not get produced.

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So nothing happens to GDP here.

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Next one.

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I-- and I'm assuming
that I am here,

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sitting here in Mountain
View, California,

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American citizen-- I
buy a Japanese made

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lawn mower for $200.

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Now this one is interesting.

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Because if you think
about it theoretically,

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nothing was produced
in the United States,

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so nothing should be added
to GDP on a net-net basis.

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And we'll see that that
is actually the case.

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But it's going to show up
by adding to consumption

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and then taking away
from net exports.

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So two things are
going to happen here.

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We'll say, OK, Sal is
an American consumer.

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If we just look at how
much more he spent,

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he spent $200 more, so it's
going to be added there.

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But then we're going to
take it out of net exports.

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So net exports-- let me do it
in that same green color-- net

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exports.

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Everything else is neutral.

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So in this thing
right over here,

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there was no foreign purchases.

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But there is me buying
a foreign product.

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And let me subtract that out.

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So I'm going to subtract
out $200 right over there.

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So net exports will
be lower by $200,

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because essentially
this was a $200 import.

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And that completely
cancels out the $200

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increase in consumption.

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And so this will have
zero net effect on GDP.

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These two terms will cancel out.

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Now I buy a new home in
California for $500,000.

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Now household spending
for the most part

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is considered C, except when
you are buying a new home.

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So even though I am
not a firm, because I

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am buying a house, a new house,
this will go into investment.

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So investment will
go up by $500,000.

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And then finally American
Airlines buys a new Airbus jet,

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and Airbus jets
are made in Europe.

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So what's going to happen here?

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So once again,
net-net, nothing was

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produced in the United States.

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So on a net basis, this
should not contribute to GDP.

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And we'll see that on net
basis, it will break out,

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it will be neutral, but it
will be like this situation.

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There's an American firm
that made a purchase--

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and actually, I didn't
put the amount here.

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So let's say it
was $100 million.

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I think that's actually about
what a passenger plane might

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actually cost, for $100 million.

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So the way we would
account for it,

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investment would go
up by $100 million.

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You have an American firm
making a purchase, $100 million.

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Conceptually, it makes sense.

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It's going to provide
future goods and services,

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going to give
transportation to people.

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But it's going to be netted out,
because you have a net import.

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So what this is going
to do to net exports,

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on this side of it, you're
going to have $100 million,

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because this was an import.

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So you're going to have
negative $100 million,

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when you think of it from
an export point of view.

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And you had no corresponding
positive export.

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So you're going to have net
exports-- net exports is

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going to go down $100 million.

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This was a net import
of $100 million,

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so it makes sense that
net exports would go down.

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It would be negative
net exports.

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And these two, once
again, are going

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to cancel out with
each other, so that you

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have no net GDP,
which makes sense,

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because this plane was not
produced in the United States.