Warm-Up/Review

1. Warm-Up/Review 1) What is the difference between GDP/GNP? 2) What are the two ways to measure them called? 3) What are the 3 Macroeconomic goals? 4) What GDP tell us about the U.S. economy? 5) What are the three spending sectors and the two markets in the Circular Flow Model?

2. SHORTCOMINGS OF GDP GDP isn’t perfect!!!

3. Shortcomings of GDP • Read and complete the handout for each shortcoming of GDP • Then you will group up, discuss and present your assigned shortcoming to the class.

4. In your groups… • Discuss your shortcoming • Create a group summary • Create a group visual • Explain how your shortcoming negatively impacts our complete understanding of GDP =>Add it all to your butcher paper!

6. Shortcomings of GDP There are FOUR shortcomings of GDP that make it an imperfect counting system of economic well-being – we still use it but we need to be aware of it’s imperfections 1. Production Excluded 2. Human Costs & Benefits 3. Treatment of Leisure Time 4. Unproductive Production that Goes into GDP

7. Problems with the GDP • GDP is one way to measure how well our economy is doing…But it ain’t perfect!!! There are four things that make GDP imperfect: • Production not included • Treatment of Leisure Time • Human Costs & Benefits • Unproductive Production in GDP

8. 1.Household production—Marge Simpson in “The Simpsons” 2.Illegal Production—Drugs, Prostitution, & Gambling 3.Underground Economy—Productive Activity not reported to the government (i.e. getting $$ “under the table,” sweat shops, & child labor) There are things that are just not included for GDP, even though you are being productive. Production Excluded:

9. Treatment of Leisure Time • Differences in values and work weeks • A person can choose to work 40 hours per week or 20 hours per week

10. Human Costs & Benefits • Psychological (stress, anxiety, & unhappiness) • Physical danger (construction?) • Some people love their jobs…and others hate theirs. • There’s no way to take that into account when we measure GDP.

11. Unproductive Production In GDP • National Defense (military) • Police Protection • Pollution Control • Environmental Clean-up DOESN’T ACCURATELY MEASURE ECONMIC WELL-BEING IN OUR COUNTRY

12. GDP: An Imperfect Counting System • PROMPT: • A little Hawthorne freshman student comes up to you one day and tells you that GDP is a perfect way of measuring our nation’s economic well-being, as he/she is trying to impress you since you are a senior. (The Freshman doesn’t know any better…and he/she hasn’t had the privilege of being in my class yet). Therefore, rather than laughing in his/her face, you take pity on the freshman. Now, your job is to explain to the little Hawthorne freshman that GDP measures economic growth, but at the same time, it isn’t perfect. What would you tell the freshman to make sure that he/she understands the shortcomings of GDP. • You must explain all four of the shortcomings of GDP in your own words. Paraphrase what you read and put them in your own words. • On a sheet of paper, answer the little Hawthorne freshman’s question for each shortcoming. • Provide a symbol for each in it’s box.

13. Wrap-Up • Which shortcoming do you think most significantly affects our ability to calculate GDP accurately? Explain.