GDP. The Strength of the National Economy

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1 GDP The Strength of the National Economy

2 Essential Standards SSEMA1A: Identify and describe the macroeconomic goals of steady economic growth, stable prices, and full employment. SSEMA1B: Define gross domestic product (GDP) as the sum of consumer spending, investment, government spending, and Net Exports (output expenditure model). SSEMA1C: Define real GDP, aggregate supply, & aggregate demand. SSEMA1F: Define the stages of the business cycle, including: peak, contraction, trough, recovery/expansion as well as recession and depression.

3 GDP GDP stands for Gross Domestic Product. It measures: The total dollar value Of all FINAL goods and services Produced WITHIN a country In ONE year. It is used to compare economic performance among countries And also to compare current economic performance with past performance.

GDP Calculation Remember, GDP measures FINAL OUTPUT ONLY. Which of these would be included in GDP calculation? Industrial plastic used to make children s toys NO.

4 GDP Calculation Remember, GDP measures FINAL OUTPUT ONLY. Which of these would be included in GDP calculation? Industrial plastic used to make children s toys NO. The frosting used on a wedding cake NO. The ink in a ball-point pen NO. We would only count the TOYS, the CAKE and the PEN Because does the value of the pen also include the value of the ink? YES. If we count both, we are double counting.

What about a case of Coke that is made in a Russian plant whose GDP will be affected?

5 Limits of GDP Calculation Items must be made WITHIN the country your are measuring. What nationality is the Coca Cola Corporation? American. What about a case of Coke that is made in a Russian plant whose GDP will be affected? RUSSIAN GDP. What nationality is the Nissan Corporation? Japanese. What about a Nissan pickup truck made in Tennessee whose GDP? American GDP.

6 GDP only measures FINAL OUTPUT. Which of the following would be included as a part of GDP calculation? A.) a fish that is caught in the North Atlantic by a commercial fishing fleet. B.) a bottle of Coca Cola. C.) a bale of cotton. D.) a gallon of crude oil that is transported from Iran to Texas.

7 Which of the following would MOST LIKELY be counted in the calculation of the US' GDP? A.) a pair of Nike running shoes. B.) a Harley Davidson motorcycle. C.) a bottle of French champagne. D.) an Atlanta Thrashers jersey.

8 GDP= C+I+G+(X-M) C= Consumer expenditures. This includes all durable goods (a lifetime of more than one year) Non-durable goods (a lifetime of less than one year), and Services. The GDP Formula

9 GDP= C+I+G+(X-M) I= Gross Investment. This is the total value of all capital goods produced during one year. Gross investment includes: Physical capital (tools, factories, etc.) and Human capital (hiring workers, paying for workers to be trained, etc.)

10 GDP= C+I +G+(X-M) G=Government purchases. Government spending Schools, highways, national defense, etc. X=Exports. Goods and services PRODUCED HERE but sold in other countries. M=Imports. Goods and services produced in other countries, but bought HERE.

11 Which of the following variables of the GDP formula (GDP = C+I+G+(X-M)) would MOST likely be affected by the construction of a new administrative lounge at Hillgrove High School? A.) C B.) G C.) I D.) X E.) M

12 Which of the following variables of the GDP formula would MOST LIKELY be affected by Mr. Lawrence having his car washed? (GDP = C+I+G+(X-M) A.) C B.) I C.) G D.) X E.) M

13 Which of the following variables of the GDP would MOST LIKELY be affected by your father purchasing a new Ford pickup truck in order to haul his jet skis to the beach? (GDP = C+I+G+(X-M) A.) C B.) I C.) G D.) X E.) M

14 Which of the following variables of the GDP would MOST LIKELY be affected by your father purchasing a new Ford pickup truck to haul his plumbing equipment to work? GDP = C+I+G+(X-M) A.) C B.) G C.) I D.) X E.) M

15 Which of the following variables of the GDP would MOST LIKELY be affected by your purchase of a Nintendo Wii? GDP = C+I+G+(X-M) A.) C B.) I C.) G D.) X E.) M

16 Which of the following variables of the GDP would MOST LIKELY be affected by the purchase of a case of Vermont Maple Syrup by a restaurant in the south of France? GDP = C+I+G+(X-M) A.) C B.) I C.) G D.) X E.) M

17 Aggregate Demand Aggregate demand is TOTAL demand for: C + I + G + (X-M) It is the SUM TOTAL of ALL DEMAND for ALL PRODUCTS in an economy.

Shifts in AD Just like demand, AD shifts to the

to lead people to want to buy MORE or FEWER

18 Shifts in AD Just like demand, AD shifts to the left and right. When determining the direction of a shift, ask yourself this question: Is this situation likely to lead people to want to buy MORE or FEWER products. If the answer is more, AD will shift RIGHT. If the answer is less, AD will shift LEFT.

19 Shifts in AD An increase in consumer optimism? AD RIGHT. An increase in tax rates? AD LEFT. A decline in business investment? AD LEFT.

20 Aggregate Supply AS is the SUM TOTAL of ALL PRODUCTS that are AVAILABLE in an economy. Just like AD, AS shifts left and right. When determining a shift in AS, ask yourself this question: Is this situation likely to lead to MORE or FEWER products AVAILABLE to consumers?

21 Shifts in AS An increase in the price of RESOURCES (oil, for example) AS LEFT. Advances in manufacturing productivity (the assembly line, for example) AS RIGHT. Expanding government regulation (an increase in minimum wage, for example) AS LEFT.

22 Phases of the Business Cycle Expansion a period of economic growth (rising GDP) Peak when real GDP stops rising Contraction a period of falling GDP Trough bottoming out. When GDP stops falling.

23 Types of Contraction Recession when GDP falls for two consecutive quarters Depression a long & severe recession with high unemployment & low production. Stagflation a decline in GDP combined with a rise in prices (inflation).

Name Economics: Unit Three Study Guide Unit One Standards

Name Economics: Unit Three Study Guide Unit One Standards Macroeconomic Concepts: SSEMA1 Illustrate the means by which economic activity is measured. a. Identify and describe the macroeconomic goals of