What Determines a Country’s Real GDP?

As we tackle this question, we will see that it is indeed connected to our stories of Dubai, the United Kingdom, Niger, Vietnam, and the United States. Our stories have something else in common as well. In each case, they concern not only the country in isolation but also how it interacts with the rest of the world. The funds for Niger’s education program are coming from other countries (via the World Bank). The US policy is designed to ensure that America is “leading the global competition that will determine our success in the 21st century.” [7] Dubai is trying to attract investment from other countries. The workers in the United Kingdom are coming from Poland. The factory in Vietnam is being built so that a Taiwanese company can supply other manufacturers throughout the world. Road Map Real GDP is the broadest measure that we have of the amount of economic activity in an economy. In this chapter, we investigate the supply of real GDP in an economy. Firms in an economy create goods and services by transforming inputs into outputs. For example, think about the manufacture of a pizza. It begins with a recipe—a set of instructions. A chef following this recipe might require 30 minutes of labor time to make the dough and assemble the toppings and then might need 15 minutes use of a pizza oven to cook the pizza. The inputs here are as follows: the pizza oven, the labor time, the skills of the chef, and the recipe. Given 15 minutes of capital time, 30 minutes of labor time, a skilled chef, and the instructions, we can make one pizza. In macroeconomics, we work with the analogous idea that explains how the total production in an economy depends on the available inputs. We first explain the relationship between the available inputs in the economy and the amount of real GDP that the economy can produce.