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Ch. 10, Sec. 1 – Gross Domestic Product

Ch. 10, Sec. 1 – Gross Domestic Product. Macroeconomics - The study of entire economies National income accounting - The tracking of production, income and consumption for a nation's economy

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Ch. 10, Sec. 1 – Gross Domestic Product

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  1. Ch. 10, Sec. 1 – Gross Domestic Product Macroeconomics - The study of entire economies National income accounting - The tracking of production, income and consumption for a nation's economy Economists hope to be able to predict economic performance by studying the past and current performance

  2. Gross Domestic Product (cont) Gross Domestic Product (GDP) - The total dollar value of all final goods and services produced within a country during one calendar year 1) Final Output - To avoid double counting, only count the final product not intermediate products 2) Current Year - Sales of secondhand products not included 3) Output Produced Within National Borders - Counts goods produced by foreign companies within our borders

  3. GDP (cont) World Rank GDP (2006, $Billions) 1) European Union - $14,527 2) United States - $13,245 3) Japan - $4,367 4) Germany - $2,897 5) China - $2,630 6) United Kingdom - $2,373 7) France - $2,231 8) Italy - $1,852

  4. GDP (cont) How is GDP determined? Four sectors of product market are combined: 1) Personal consumption expenditures (C) 2) Gross Investment (I), total value of all capital goods produced 3) Government purchases (G) 4) Exports minus imports (X-M) Output-expenditure model C+I+G+(X-M)= GDP

  5. GDP (cont) Nominal GDP - Expressed in the current prices of the period being measured Real GDP - Adjusted for price changes (inflation) 1996 – 2000 Nominal GDP increased by 26%, real GDP increased by only 18%

  6. GDP (cont) Limitations of GDP - Accuracy and timeliness of data Non-market activities (barter, housework, chores) Underground economy (unreported/illegal activities) Externalities (“goods” and “bads”)

  7. Other National Income Measures Gross National Product - All final output produced by factors of production owned by residents of a country National Income - Employees and owners income, corporate profits and net interest Personal Income - All income earned by individuals Disposable personal income - Total amount of income available to spend/save

  8. Ch. 10, Sec. 2 – Business Cycles Four phases to the business cycle: 1) Expansion (recovery) - From 1940-44, GDP increased from $99.7B to $210.1B – Why? 2) Peak - Economy is at its strongest, high demand 3) Contraction (recession) - Decline in real GDP for 2 or more quarters 4) Trough - Demand, production and employment at lowest

  9. Business Cycles (cont) Influences on the business cycle: 1) Business investment - Higher investment, higher production and new development 2) Money and credit - Output varies with availability of credit 3) Public expectations - Consumer spending varies based on their feelings about the economy 4) External factors - World economy, war, weather, etc

  10. Business Cycles (cont) Predicting the cycle - Economists use three types of indicators to determine which phase of the cycle the economy is currently in: 1) Leading indicators - To anticipate the direction the economy is heading Building permits, new orders, price of raw matls 2) Coincident indicators - Provide information about current conditions Personal income, sales, industrial production

  11. Business Cycles (cont) 3) Lagging indicators - These happen after an upturn or downturn and may help predict the duration of it Consumer credit

  12. Ch. 10, Sec. 3 – Economic Growth How do we measure economic growth? Increase in real GDP per capita US - $13T/300M= China - $2.6T/1.2B= The importance of economic growth - 1) Increase the standard of living 2) Competing in world markets 3) Increasing domestic resources More tax payers

  13. Economic Growth (cont) Requirements for economic growth - LAND (natural resources) LABOR (human resources) CAPITAL ENTREPRENEURSHIP Increasing Productivity - 1) Technological advances 2) Capital deepening - Production of capital goods increases faster than size of workforce

  14. Economic Growth (cont) 3) Educated/Skilled labor force 4) Motivation, dedication and loyalty Productivity in the US - Productivity growth has slowed since the 1960s Decreased savings and investment Decreased investment in research & develop. Increased gov't regulation Shift to service based economy

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