Transcript Gross Domestic Product (“GDP”)

Chapter 12
Read P. 301-305
(up to “Other Income and Output Measures”)
To determine the health of the
American economy,
economists keep track of the
amount of goods and services
produced yearly by the nation
and the amount of income
people have to spend.
 In the simplest of terms, if the nation
produces more goods and services from one
year to the next, it can generally be said that
the economy is growing…
 A growing economy creates jobs…
 People who live in an ever-growing economy
enjoy a rising standard of living
 A healthy, growing economy is a MAJOR goal that
we all share because we all want to live better,
more comfortable lives.
5 statistics are used…
we’ll focus on only 1:
“Gross Domestic Product”
Total spent on all final
goods/services produced in
the nation in a single year.
 Measures value of the stuff we
produce…not the quantity OR
quality
 (GDP is currently somewhere around
$14-15 trillion dollars):
14,750,000,000,000
Consumer Spending
X
Business Investment
Gov't. Spending
G
Net Exports
I
C
 Consumer spending: What we spend on
everything from gum to private jet airplanes
 Investment by business: What business
spends on new equipment, labor, buildings,
software, etc.
 G0vernment spending: What government
spends on defense, bailouts, Medicare, etc.
 X…net exports: The difference between what
we sell overseas and what we buy from overseas
Does NOT take into account:
1.
2.
3.
Non-market activities (things we do for
ourselves…mowing the lawn, etc)
Underground economy: black mkt., illegal
drugs, weapons, stolen cars, etc.
Quality of life…growing GDP does not
automatically mean higher std. of living for
citizens

HOW? It does not represent higher
output
 Explanation: Imagine an ice cream cone
cost $1.00 last year….and now it costs $2.00
GDP has doubled… but we haven’t
produced twice as many ice cream cones,
have we?
 A mathematical computation used
to remove the effects of inflation
(don’t panic…you don’t have to do the computation…
just know that it IS used)
 The resulting number is called
“Real GDP”
 Just as we might monitor our blood
pressure as a way of assessing our overall
health, we monitor how the economy is
performing to see if it is expanding
(growth) or contracting (negative
growth)
 Remember: growth creates jobs and
leads to a higher std. of living