Gross Domestic Product

1. Gross Domestic Product Chapter 12 Section 3 Economic Growth

2. Gross Domestic Product • Most of us would agree that as far as material possession go, Americans are much better today than they were 100 years ago. • Economic growth has allowed successive generations to have more and better goods and services than their parents.

3. Gross Domestic Product • Long-term increases in Real GDP allow an entire society to improve its quality of life, especially its standard of living.

4. Gross Domestic Product • Measuring Economic Growth: • Basic measure of a nation’s economic growth rate is the percentage change of Real GDP over a given period of time. • GDP & Population Growth: • Over time a nation’s population tends to grow. • Real GDP, if it is to satisfy the needs of a nation’s growing population, must keep up with the growth rate of the population.

5. Gross Domestic Product • This is one reason that economists prefer a measure that takes population growth into account. • Real GDP per Capita – Real GDP divided by the population of a country.

6. Gross Domestic Product • AustraliaIndia GDP - $ 390 Billion 380 Billion

7. Gross Domestic Product • AustraliaIndia GDP - $ 390 Billion 380 Billion Population – 20 million 1 Billion

8. Gross Domestic Product • AustraliaIndia GDP - $ 390 Billion 380 Billion Population – 20 million 1 Billion • Real GDP per capita • $ 18,350.00 $ 370.00

9. Gross Domestic Product • GDP & Quality of Life: • We can use GDP to measure standard of living, which relates to material goods. • We cannot use it as a complete measure of people’s quality of life. • It excludes many factors that affect the quality of life, such as the state of the environment, the level of stress that individuals feel in their daily lives. • GDP does give us a clue as to the wealth of a country.

10. Gross Domestic Product • Physical capital {the equipment used to produce goods and services} makes an important contribution to the output of an economy. • With more physical capital, each worker can be more efficient and productive. • This is called Labor Productivity

11. Gross Domestic Product • Capital Deepening – process of increasing the amount of capital per worker. • Education, experience, and skills contributes to the output. • Better training and more experienced workers can produce more output per hour of work.

12. Gross Domestic Product • Saving and Investment • Output can be used for consumption by consumers or for investment by firms. Income that is not used for consumption is called savings.

13. Gross Domestic Product • Population, Government, and Trade: • Population growth does not necessarily preclude (prevent) economic growth. • Population has to grow and the supply of capital has to increase for capital deepening to occur.

14. Gross Domestic Product • Government can affect the process of capital deepening in several ways. 1. Raise Taxes – households have less $ to spend (affect savings). • Government invests in the Infrastructure, investments will increase. 2. Foreign Trade • Result in the value of goods a country imports is higher than the value of goods that it exports. • Countries want a balance in foreign trade.

15. Gross Domestic Product 3. Technological Progress * New inventions or new ways to perform a task. * Technological progress – an increase in efficiency gained by producing more output without using more inputs.

16. Gross Domestic Product • In most modern economies, the amount of physical and human capital changes all the time. • So does the quantity and quality of labor and the technology used to produce goods and services. • These interconnected variables work together to economic growth.

17. Gross Domestic Product • Causes of Technological Progress. • Scientific Research New and improved production • Innovation Successful products or ideas improve output Patents • Scale of the Market Larger markets provide more incentives for innovation

18. Gross Domestic Product • Education and Experience • Natural Resource use Can create a need for new technology. Can turn previously useless raw materials into usable resources.