Transcript 6.02 Understand economic indicators to recognize economic trends

6.00 Understand economics trends and
communication.
6.02 Understand economic indicators to
recognize economic trends and conditions.
6.02-B Explain the concept of Gross Domestic
Product.
5-172 5-173 Define 6.02-B
 Gross Domestic Product (GDP):
◦ the market value of the goods and services produced BY a
country.
 Personal Consumption Expenditures:
◦ measures household consumption expenditures on gross
domestic product. Personal consumption expenditures are far
and away the largest and most stable of the four expenditures,
averaging about 65 to 70 percent of gross domestic product.
 Gross Private Domestic Investment:
◦ measuring capital investment expenditures. Gross private
domestic investment is expenditures on capital goods to be used
for productive activities in the domestic economy that are
undertaken by the business sector during a given time period
Define
Government purchases of goods and services:
◦ Expenditures made by the government sector on final
goods and services, or gross domestic product.
Government purchases are used to buy the goods and
services needed to operate the government (such as
administrative salaries) and to provide public goods
(including national defense, highway construction).
◦ Government purchases annually account for about 10 to
15 percent of the total or aggregate expenditures on gross
domestic product.
 Net exports of goods and services: the official
government measure of net exports with the foreign
sector, the difference between exports and imports.
◦ They are positive when exports are greater than imports
and negative when exports are less than imports.
Define
 Trade deficit:
◦ importing more than we export
 Trade surplus:
◦ exporting more than we import
 Uncounted production:
◦ production not tracked or counted in economic
measurements
 Underground economy: “off the books”
 Transactions not reported to the government
 Double counting:
◦ Production shows up two ways in the measurements
GDP
 Identify the categories of goods and services that
make up GDP.
◦ Personal Consumption Expenditures – largest
component; purchases made by individuals
◦ Gross private domestic Investment – purchases made
by businesses
◦ Government purchases of goods and services
◦ Net exports – the balance of imports and exports
http://www.quickmba.com/econ/macro/gdp/
 Describe problems encountered in calculating
GDP.
◦ Getting all production reported
 Underground economy, uncounted production ,
double counting, inflation, & the vast amount of
information involved
GDP
 Explain the importance of a country's
GDP.
◦ one the primary indicators used to gauge the health of a
country's economy It represents the total dollar value of
all goods and services produced over a specific time period
- you can think of it as the size of the economy.
http://www.investopedia.com/ask/answers/199.asp#ixzz1
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◦ Supports a higher standard of living
◦ Improves government performance
◦ Helps to resolve domestic economic problems
◦ Helps to develop trading partnerships with other countries
GDP
• Describe ways to increase GDP.
– Invest in infrastructure, enforce laws, lower taxes
(usually short-term)
• Describe how the government responds to changes in
GDP.
– Increasing the amount of money in circulation
– Spending more on goods & services
– Lowering the prime interest rate (rate used by banks)
– Decreasing the discount rate for banks where banks
borrow from the Federal Reserve
– Lowering Taxes
– Slow economy = recession
– Economy growing too fast = inflation
GDP
• Describe ways that businesses respond to
changes in GDP.
– Whether or not to expand
– Increase or decrease production
– To borrow money
– To increase or decrease investments
– To hire more employees
– To increase or decrease their inventories
– To plan, budget, and forecast