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Standard 5

Standard 5. National Economic Performance. Gross Domestic Product (GDP). Market value of all final G/S produced within a nation in a given time period To be included, a G/S must be final (intermediate- fabric, final- shirt) and produced within borders. Calculating GDP: Consumption (C)

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Standard 5

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  1. Standard 5 National Economic Performance

  2. Gross Domestic Product (GDP) • Market value of all final G/S produced within a nation in a given time period • To be included, a G/S must be final (intermediate- fabric, final- shirt) and produced within borders

  3. Calculating GDP: Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (Foreign trade, X) • When GDP is growing, an economy creates more jobs and more business opportunities • When GDP declines, jobs and more business opportunities become less plentiful

  4. 2 Types: • Nominal GDP- stated in the price levels for the year in which the GDP was measured • Real GDP- nominal GDP adjusted for changes in prices • An estimate of the GDP if prices were to remain constant from year to year • If output remained the same, how would a year of falling prices affect nominal GDP? How would it affect real GDP? • Nominal GDP would fall compared with other years. Real GDP would not change.

  5. What GDP Does Not Measure • Nonmarket activities (i.e. home childcare or performing one’s own home repairs) • Underground economy (i.e. illegal- drug dealing and legal- plumber who works for cash) • Quality of Life (GDP does not show how G/S are distributed- 10%+ of Americans live in poverty)

  6. Just checking… • If you get paid in cash to baby-sit, mow lawns, or do other chores for neighbors, are you part of the underground economy? Why or why not? • Yes, if you are required to file taxes and do not report the income to the IRS • No, if you do report taxable income

  7. How economic value might be assigned to homemaking activities: • Choose a partner. • Attempt to determine a dollar value for one adult’s full-time homemaking activities for one year. • Take notes about the process you use to arrive at that figure.

  8. Business Cycle • A series of periods of expanding and contracting economic activity • Four Phases: • Expansion • A period of economic growth (an increase in a nation’s real GDP) • Peak • The point at which GDP is highest • Contraction • Sometimes a recession (6 months+) or depression (extended period of high unemployment and limited business activity) • Trough • The point at which real GDP and employment stop declining

  9. How economic growth is measured • Real GDP per capita • Real GDP/Total Population • Reflects each person’s share of real GDP • Some people will have more money, others less • Does not measure quality of life

  10. One way to understand business cycles is through demand and supply… • Aggregate demand- the total amount of G/S that households, businesses, government and foreign purchases will buy at each and every price level • Aggregate supply- the total amount of G/S that producers will provide at each and every price level • www. classzone.com

  11. Why do Business Cycles Occur? • Business decisions • Changes in interest rates • Consumer expectations • External issues (i.e. Hurricane Katrina)

  12. Business Cycles in U.S. History • The Great Depression • Real GDP declined by about a third • Sales in some big businesses declined by as much as 50 percent • 1 in 4 people were unemployed • The New Deal • Government agencies created • Many Americans were put back to work • Some trees in Eagle Creek Park were planted during this time

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