[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.77,0:00:02.68,Default,,0000,0000,0000,,What I've done here\Nis listed a bunch
Dialogue: 0,0:00:02.68,0:00:05.31,Default,,0000,0000,0000,,of events that might\Noccur in a given period.
Dialogue: 0,0:00:05.31,0:00:07.14,Default,,0000,0000,0000,,And what I want to think\Nabout in this video
Dialogue: 0,0:00:07.14,0:00:11.56,Default,,0000,0000,0000,,is how, if at all, they might\Nbe accounted for in GDP,
Dialogue: 0,0:00:11.56,0:00:13.99,Default,,0000,0000,0000,,especially in this\Nexpenditure view of GDP.
Dialogue: 0,0:00:13.99,0:00:16.32,Default,,0000,0000,0000,,And I encourage you\Nto pause this video
Dialogue: 0,0:00:16.32,0:00:17.64,Default,,0000,0000,0000,,and try it out yourself.
Dialogue: 0,0:00:17.64,0:00:20.69,Default,,0000,0000,0000,,See how, if each of these\Nevents happen in the period
Dialogue: 0,0:00:20.69,0:00:23.36,Default,,0000,0000,0000,,for which we are trying\Nto calculate GDP,
Dialogue: 0,0:00:23.36,0:00:26.00,Default,,0000,0000,0000,,how would they be accounted\Nfor, according to the buckets
Dialogue: 0,0:00:26.00,0:00:28.76,Default,,0000,0000,0000,,we thought about, the\Ncomposition of the expenditure
Dialogue: 0,0:00:28.76,0:00:30.16,Default,,0000,0000,0000,,view of GDP.
Dialogue: 0,0:00:30.16,0:00:31.96,Default,,0000,0000,0000,,So now I'm assuming\Nthat you have unpaused,
Dialogue: 0,0:00:31.96,0:00:34.46,Default,,0000,0000,0000,,you've tried it yourself, and\Nso let's try to go through it.
Dialogue: 0,0:00:34.46,0:00:36.76,Default,,0000,0000,0000,,So Khan Academy is a firm.
Dialogue: 0,0:00:36.76,0:00:37.96,Default,,0000,0000,0000,,It's a not-for-profit firm.
Dialogue: 0,0:00:37.96,0:00:39.34,Default,,0000,0000,0000,,No one really owns Khan Academy.
Dialogue: 0,0:00:39.34,0:00:43.25,Default,,0000,0000,0000,,I guess society owns Khan\NAcademy, but it is a firm.
Dialogue: 0,0:00:43.25,0:00:45.41,Default,,0000,0000,0000,,So Khan Academy employs\Na software engineer
Dialogue: 0,0:00:45.41,0:00:47.52,Default,,0000,0000,0000,,and pays them $100,000.
Dialogue: 0,0:00:47.52,0:00:50.96,Default,,0000,0000,0000,,Well, this is a firm\Nmaking the expenditure.
Dialogue: 0,0:00:50.96,0:00:52.64,Default,,0000,0000,0000,,And arguably and\Neven conceptually,
Dialogue: 0,0:00:52.64,0:00:53.76,Default,,0000,0000,0000,,this also is an investment.
Dialogue: 0,0:00:53.76,0:00:57.24,Default,,0000,0000,0000,,Because this $100,000 is going\Nto be used to develop code
Dialogue: 0,0:00:57.24,0:00:58.84,Default,,0000,0000,0000,,that has future benefit.
Dialogue: 0,0:00:58.84,0:01:02.35,Default,,0000,0000,0000,,So this is going to be\Nthe investment category.
Dialogue: 0,0:01:02.35,0:01:04.39,Default,,0000,0000,0000,,Let me do it in that same color.
Dialogue: 0,0:01:04.39,0:01:11.15,Default,,0000,0000,0000,,So I, investment, is going\Nto get plus $100,000.
Dialogue: 0,0:01:11.15,0:01:15.62,Default,,0000,0000,0000,,In general, the spending by\Nfirms goes into investment.
Dialogue: 0,0:01:15.62,0:01:17.24,Default,,0000,0000,0000,,Now, let's look at\Nthe second scenario.
Dialogue: 0,0:01:17.24,0:01:19.72,Default,,0000,0000,0000,,Accenture, which is\Nanother firm, and this
Dialogue: 0,0:01:19.72,0:01:23.69,Default,,0000,0000,0000,,is a for-profit firm, earns $10\Nmillion-- or maybe I should say
Dialogue: 0,0:01:23.69,0:01:28.57,Default,,0000,0000,0000,,gets $10 million\Nin revenue, just
Dialogue: 0,0:01:28.57,0:01:33.90,Default,,0000,0000,0000,,to be clear what we're\Ntalking about-- by building
Dialogue: 0,0:01:33.90,0:01:35.84,Default,,0000,0000,0000,,a new IT system for California.
Dialogue: 0,0:01:35.84,0:01:38.09,Default,,0000,0000,0000,,And the important thing to\Nthink about, you might say,
Dialogue: 0,0:01:38.09,0:01:40.82,Default,,0000,0000,0000,,oh, OK, wait, this is\NOK, Accenture is a firm,
Dialogue: 0,0:01:40.82,0:01:44.65,Default,,0000,0000,0000,,but California is\Nclearly the government.
Dialogue: 0,0:01:44.65,0:01:46.21,Default,,0000,0000,0000,,So how do you account for this?
Dialogue: 0,0:01:46.21,0:01:48.97,Default,,0000,0000,0000,,And it's the\Nexpenditure view of GDP.
Dialogue: 0,0:01:48.97,0:01:53.65,Default,,0000,0000,0000,,So in this situation, California\Nis spending $10 million
Dialogue: 0,0:01:53.65,0:01:57.45,Default,,0000,0000,0000,,in the period for\Na new IT system.
Dialogue: 0,0:01:57.45,0:01:59.76,Default,,0000,0000,0000,,So this is going\Nto be government.
Dialogue: 0,0:01:59.76,0:02:03.22,Default,,0000,0000,0000,,The government category is going\Nto be increased by $10 million,
Dialogue: 0,0:02:03.22,0:02:06.34,Default,,0000,0000,0000,,because of this expenditure.
Dialogue: 0,0:02:06.34,0:02:07.16,Default,,0000,0000,0000,,Now next one.
Dialogue: 0,0:02:07.16,0:02:09.25,Default,,0000,0000,0000,,My mother sells her\Nhouse in New Orleans
Dialogue: 0,0:02:09.25,0:02:11.93,Default,,0000,0000,0000,,to a Swedish woman for $200,000.
Dialogue: 0,0:02:11.93,0:02:14.78,Default,,0000,0000,0000,,Once again, a\Nhouse is being sold
Dialogue: 0,0:02:14.78,0:02:17.66,Default,,0000,0000,0000,,from someone in the country\Nto someone who was foreign,
Dialogue: 0,0:02:17.66,0:02:18.68,Default,,0000,0000,0000,,what do we do?
Dialogue: 0,0:02:18.68,0:02:20.39,Default,,0000,0000,0000,,But the important\Nthing to realize
Dialogue: 0,0:02:20.39,0:02:22.54,Default,,0000,0000,0000,,is that this is not a new house.
Dialogue: 0,0:02:22.54,0:02:24.69,Default,,0000,0000,0000,,This is a transfer\Nof an existing house.
Dialogue: 0,0:02:24.69,0:02:26.51,Default,,0000,0000,0000,,Nothing was produced here.
Dialogue: 0,0:02:26.51,0:02:30.36,Default,,0000,0000,0000,,So this has no\Ncontribution to GDP.
Dialogue: 0,0:02:30.36,0:02:32.90,Default,,0000,0000,0000,,It doesn't matter it's a Swedish\Nwoman or anything like that.
Dialogue: 0,0:02:32.90,0:02:34.11,Default,,0000,0000,0000,,The house existed before.
Dialogue: 0,0:02:34.11,0:02:35.35,Default,,0000,0000,0000,,It just changed hands.
Dialogue: 0,0:02:35.35,0:02:37.38,Default,,0000,0000,0000,,A new house did\Nnot get produced.
Dialogue: 0,0:02:37.38,0:02:40.32,Default,,0000,0000,0000,,So nothing happens to GDP here.
Dialogue: 0,0:02:40.32,0:02:41.29,Default,,0000,0000,0000,,Next one.
Dialogue: 0,0:02:41.29,0:02:43.39,Default,,0000,0000,0000,,I-- and I'm assuming\Nthat I am here,
Dialogue: 0,0:02:43.39,0:02:45.14,Default,,0000,0000,0000,,sitting here in Mountain\NView, California,
Dialogue: 0,0:02:45.14,0:02:47.95,Default,,0000,0000,0000,,American citizen-- I\Nbuy a Japanese made
Dialogue: 0,0:02:47.95,0:02:50.60,Default,,0000,0000,0000,,lawn mower for $200.
Dialogue: 0,0:02:50.60,0:02:53.29,Default,,0000,0000,0000,,Now this one is interesting.
Dialogue: 0,0:02:53.29,0:02:55.32,Default,,0000,0000,0000,,Because if you think\Nabout it theoretically,
Dialogue: 0,0:02:55.32,0:02:57.08,Default,,0000,0000,0000,,nothing was produced\Nin the United States,
Dialogue: 0,0:02:57.08,0:03:00.02,Default,,0000,0000,0000,,so nothing should be added\Nto GDP on a net-net basis.
Dialogue: 0,0:03:00.02,0:03:01.94,Default,,0000,0000,0000,,And we'll see that that\Nis actually the case.
Dialogue: 0,0:03:01.94,0:03:04.81,Default,,0000,0000,0000,,But it's going to show up\Nby adding to consumption
Dialogue: 0,0:03:04.81,0:03:07.04,Default,,0000,0000,0000,,and then taking away\Nfrom net exports.
Dialogue: 0,0:03:07.04,0:03:08.99,Default,,0000,0000,0000,,So two things are\Ngoing to happen here.
Dialogue: 0,0:03:08.99,0:03:12.02,Default,,0000,0000,0000,,We'll say, OK, Sal is\Nan American consumer.
Dialogue: 0,0:03:12.02,0:03:14.15,Default,,0000,0000,0000,,If we just look at how\Nmuch more he spent,
Dialogue: 0,0:03:14.15,0:03:17.89,Default,,0000,0000,0000,,he spent $200 more, so it's\Ngoing to be added there.
Dialogue: 0,0:03:17.89,0:03:21.23,Default,,0000,0000,0000,,But then we're going to\Ntake it out of net exports.
Dialogue: 0,0:03:21.23,0:03:27.16,Default,,0000,0000,0000,,So net exports-- let me do it\Nin that same green color-- net
Dialogue: 0,0:03:27.16,0:03:28.23,Default,,0000,0000,0000,,exports.
Dialogue: 0,0:03:28.23,0:03:30.02,Default,,0000,0000,0000,,Everything else is neutral.
Dialogue: 0,0:03:30.02,0:03:31.58,Default,,0000,0000,0000,,So in this thing\Nright over here,
Dialogue: 0,0:03:31.58,0:03:33.66,Default,,0000,0000,0000,,there was no foreign purchases.
Dialogue: 0,0:03:33.66,0:03:36.43,Default,,0000,0000,0000,,But there is me buying\Na foreign product.
Dialogue: 0,0:03:36.43,0:03:38.10,Default,,0000,0000,0000,,And let me subtract that out.
Dialogue: 0,0:03:38.10,0:03:41.64,Default,,0000,0000,0000,,So I'm going to subtract\Nout $200 right over there.
Dialogue: 0,0:03:41.64,0:03:45.35,Default,,0000,0000,0000,,So net exports will\Nbe lower by $200,
Dialogue: 0,0:03:45.35,0:03:47.28,Default,,0000,0000,0000,,because essentially\Nthis was a $200 import.
Dialogue: 0,0:03:47.28,0:03:49.82,Default,,0000,0000,0000,,And that completely\Ncancels out the $200
Dialogue: 0,0:03:49.82,0:03:51.72,Default,,0000,0000,0000,,increase in consumption.
Dialogue: 0,0:03:51.72,0:03:54.82,Default,,0000,0000,0000,,And so this will have\Nzero net effect on GDP.
Dialogue: 0,0:03:54.82,0:03:57.64,Default,,0000,0000,0000,,These two terms will cancel out.
Dialogue: 0,0:03:57.64,0:04:03.21,Default,,0000,0000,0000,,Now I buy a new home in\NCalifornia for $500,000.
Dialogue: 0,0:04:03.21,0:04:05.59,Default,,0000,0000,0000,,Now household spending\Nfor the most part
Dialogue: 0,0:04:05.59,0:04:10.67,Default,,0000,0000,0000,,is considered C, except when\Nyou are buying a new home.
Dialogue: 0,0:04:10.67,0:04:14.76,Default,,0000,0000,0000,,So even though I am\Nnot a firm, because I
Dialogue: 0,0:04:14.76,0:04:19.90,Default,,0000,0000,0000,,am buying a house, a new house,\Nthis will go into investment.
Dialogue: 0,0:04:19.90,0:04:24.17,Default,,0000,0000,0000,,So investment will\Ngo up by $500,000.
Dialogue: 0,0:04:24.17,0:04:28.11,Default,,0000,0000,0000,,And then finally American\NAirlines buys a new Airbus jet,
Dialogue: 0,0:04:28.11,0:04:30.69,Default,,0000,0000,0000,,and Airbus jets\Nare made in Europe.
Dialogue: 0,0:04:30.69,0:04:32.65,Default,,0000,0000,0000,,So what's going to happen here?
Dialogue: 0,0:04:32.65,0:04:35.53,Default,,0000,0000,0000,,So once again,\Nnet-net, nothing was
Dialogue: 0,0:04:35.53,0:04:36.92,Default,,0000,0000,0000,,produced in the United States.
Dialogue: 0,0:04:36.92,0:04:40.32,Default,,0000,0000,0000,,So on a net basis, this\Nshould not contribute to GDP.
Dialogue: 0,0:04:40.32,0:04:42.81,Default,,0000,0000,0000,,And we'll see that on net\Nbasis, it will break out,
Dialogue: 0,0:04:42.81,0:04:46.17,Default,,0000,0000,0000,,it will be neutral, but it\Nwill be like this situation.
Dialogue: 0,0:04:46.17,0:04:48.17,Default,,0000,0000,0000,,There's an American firm\Nthat made a purchase--
Dialogue: 0,0:04:48.17,0:04:49.96,Default,,0000,0000,0000,,and actually, I didn't\Nput the amount here.
Dialogue: 0,0:04:49.96,0:04:52.13,Default,,0000,0000,0000,,So let's say it\Nwas $100 million.
Dialogue: 0,0:04:52.13,0:04:54.55,Default,,0000,0000,0000,,I think that's actually about\Nwhat a passenger plane might
Dialogue: 0,0:04:54.55,0:04:57.89,Default,,0000,0000,0000,,actually cost, for $100 million.
Dialogue: 0,0:04:57.89,0:04:59.76,Default,,0000,0000,0000,,So the way we would\Naccount for it,
Dialogue: 0,0:04:59.76,0:05:03.48,Default,,0000,0000,0000,,investment would go\Nup by $100 million.
Dialogue: 0,0:05:03.48,0:05:08.51,Default,,0000,0000,0000,,You have an American firm\Nmaking a purchase, $100 million.
Dialogue: 0,0:05:08.51,0:05:09.72,Default,,0000,0000,0000,,Conceptually, it makes sense.
Dialogue: 0,0:05:09.72,0:05:11.72,Default,,0000,0000,0000,,It's going to provide\Nfuture goods and services,
Dialogue: 0,0:05:11.72,0:05:13.75,Default,,0000,0000,0000,,going to give\Ntransportation to people.
Dialogue: 0,0:05:13.75,0:05:20.20,Default,,0000,0000,0000,,But it's going to be netted out,\Nbecause you have a net import.
Dialogue: 0,0:05:20.20,0:05:23.03,Default,,0000,0000,0000,,So what this is going\Nto do to net exports,
Dialogue: 0,0:05:23.03,0:05:25.59,Default,,0000,0000,0000,,on this side of it, you're\Ngoing to have $100 million,
Dialogue: 0,0:05:25.59,0:05:26.72,Default,,0000,0000,0000,,because this was an import.
Dialogue: 0,0:05:26.72,0:05:28.63,Default,,0000,0000,0000,,So you're going to have\Nnegative $100 million,
Dialogue: 0,0:05:28.63,0:05:30.78,Default,,0000,0000,0000,,when you think of it from\Nan export point of view.
Dialogue: 0,0:05:30.78,0:05:34.43,Default,,0000,0000,0000,,And you had no corresponding\Npositive export.
Dialogue: 0,0:05:34.43,0:05:37.92,Default,,0000,0000,0000,,So you're going to have net\Nexports-- net exports is
Dialogue: 0,0:05:37.92,0:05:40.59,Default,,0000,0000,0000,,going to go down $100 million.
Dialogue: 0,0:05:40.59,0:05:42.67,Default,,0000,0000,0000,,This was a net import\Nof $100 million,
Dialogue: 0,0:05:42.67,0:05:44.95,Default,,0000,0000,0000,,so it makes sense that\Nnet exports would go down.
Dialogue: 0,0:05:44.95,0:05:46.90,Default,,0000,0000,0000,,It would be negative\Nnet exports.
Dialogue: 0,0:05:46.90,0:05:48.82,Default,,0000,0000,0000,,And these two, once\Nagain, are going
Dialogue: 0,0:05:48.82,0:05:50.88,Default,,0000,0000,0000,,to cancel out with\Neach other, so that you
Dialogue: 0,0:05:50.88,0:05:53.24,Default,,0000,0000,0000,,have no net GDP,\Nwhich makes sense,
Dialogue: 0,0:05:53.24,0:05:57.13,Default,,0000,0000,0000,,because this plane was not\Nproduced in the United States.