Splash Screen

1. Chapter 13 Economic Performance Splash Screen

2. Economics and You A growing economy means an expanding economy, one that continues to provide more people with what they want or need. In Chapter 13, you will learn how the nation’s economic growth is the key to a better future for everyone. Click the Speaker button to listen to Economics and You. Chapter Introduction 1

3. Chapter Objectives Section 1: Measuring the Nation’s Output • Explain how Gross Domestic Product (GDP) is measured.  • Describe the limitations of GDP.  • Understand the importance of GDP. Click the mouse button or press the Space Bar to display the information. Chapter Introduction 2

4. Chapter Objectives Section 2: GDP and Changes in the Price Level • Explain how a price index is constructed.  • Describe three price indices.  • Understand the difference between real and current GDP. Click the mouse button or press the Space Bar to display the information. Chapter Introduction 3

5. Study Guide (cont.) Key Terms • Gross Domestic Product  • net national product  • national income  • personal income  • disposable personal income  • household  • unrelated individual  • family  • output-expenditure model  • net exports of goods and services • national income accounting  • intermediate products  • secondhand sales  • nonmarket transactions  • underground economy  • Gross National Product  Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 341 of your textbook. Section 1-2

6. Study Guide (cont.) Objectives After studying this section, you will be able to:  • Explain how Gross Domestic Product (GDP) is measured  • Describe the limitations of GDP.  • Understand the importance of GDP.  Applying Economic Concepts Gross Domestic Product Why is the GDP the most important measure of overall economic performance? Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 341 of your textbook. Section 1-3

7. Introduction • TheGross Domestic Product (GDP)–the dollar amount of all final goods and services produced within a country’s national borders in a year–is the single most important measure of the economy’s overall economic performance.  • When GDP does not do well, neither does the rest of the economy.  • Economists devised national income accounting–a system of statistics and accounts that keeps track of production, consumption, saving, and investment–to track overall economic performance. Click the mouse button or press the Space Bar to display the information. Section 1-4

8. Introduction (cont.) • This data becomes part of the National Income and Product Accounts (NIPA) kept by the U.S. Department of Commerce.  • The NIPA is like a statistical road map that tells Americans where they are and how they got there. Click the mouse button or press the Space Bar to display the information. Section 1-5

9. GDP–The Measure of National Output • Gross Domestic Product (GDP), a measure of national output is computed by multiplying all final goods and services produced in a 12-month period by their prices.  • Intermediate goods, secondhand sales, and nonmarket transactions are excluded from GDP. Click the mouse button or press the Space Bar to display the information. Section 1-6

10. GDP–The Measure of National Output (cont.) Figure 13.1Estimating Gross Domestic Product Section 1-8b

11. GDP–The Measure of National Output (cont.) • GDP tells nothing about the composition of output or the impact of production on quality of life. • Despite its limitations, GDP is still the best measure of overall economic health. Click the mouse button or press the Space Bar to display the information. Section 1-6

12. Discussion Question What does an increase in GDP indicate? That the country experienced economic growth. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

13. GNP–The Measure of National Income • Gross NationalProduct (GNP) is equal to GDP plus all payments that Americans receive from outside the United States minus all payments made to foreign-owned resources inside the United States.  • Net National Product (NNP) is equal to GDP minus depreciation.  • National Income (NI) is equal to NNP minus all taxes paid by businesses other than the corporate profits tax. Click the mouse button or press the Space Bar to display the information. Section 1-15

14. GNP–The Measure of National Income (cont.) • Personal Income (PI) is the total amount of income received by individuals before taxes.  • Disposable Personal Income (DI) is PI less taxes. Click the mouse button or press the Space Bar to display the information. Section 1-16

15. Discussion Question Which measure of national income would you be interested in if you were trying to forecast sales of consumer goods? Disposable personal income, which reflects the amount of money individuals have to spend. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

16. Economic Sectors and Circular Flows • The consumer sector includes individuals/households.  • The investment sector includes businesses.  • The government sector includes local, state, and federal levels of government.  • The foreign sector includes all consumers and producers outside the United States. Click the mouse button or press the Space Bar to display the information. Section 1-24

17. Economic Sectors and Circular Flows (cont.) Section 1-24b

18. The Output-Expenditure Model • The output-expenditure model is a macroeconomic model used to show aggregate demand by all the economic sectors.  • The equation for the output-expenditure model is GDP = C + I + G + F.  • Each sector spends its income on different types of goods and services. Click the mouse button or press the Space Bar to display the information. Section 1-30

19. The Output-Expenditure Model (cont.) Section

20. Click the mouse button to return to the Contents slide. End of Section 1

21. Introduction • Most people are surprised to discover how hard the government works to collect and process data.  • Inflation is a rise in the general price level.  • It is important to track inflation because it distorts the economic statistics that we keep. Click the mouse button or press the Space Bar to display the information. Section 2-4

22. Introduction (cont.) Section 2-5

23. Constructing a Price Index • A price index is used to measure changes in prices over time.  • A price index is created by selecting a base year and a representative market basket of goods.  Click the mouse button or press the Space Bar to display the information. Section 2-6

24. Constructing a Price Index (cont.) Figure 13.5 Constructing the Consumer Price Index Section 2-7b

25. Discussion Question What do price indices show? The change in price relative to a base year. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 1

26. Major Price Indices • The consumer price index (CPI) reports changes in the prices of 80,000 consumer goods and services.  • The producer price index (PPI) reports changes in prices received by domestic producers for 3,000 commodities.  • The GDP price deflator is an index of average prices for all goods and services. Click the mouse button or press the Space Bar to display the information. Section 2-8

27. Real vs. Current GDP • Real GDP is calculated by dividing current GDP by the implicit GDP price deflator and multiplying by 100.  • Converting current GDP into real GDP is useful for comparing over time. Click the mouse button or press the Space Bar to display the information. Section 2-13

28. Section Close What is the importance of inflation when discussing economic statistics. Name any familiar products that you believe have been affected by a rise in inflation. Section 2-Assessment 8

29. Click the mouse button to return to the Contents slide. End of Section 2