Things that look alike….

1. Things that look alike….

4. Measuring Economic Growth • To achieve the “American Dream” our economy has to grow. • Enables people to have a higher standard of living • People can purchase more of what they want • Increases the government’s tax revenue and thus spending flexibility

5. Gross Domestic Product • Primary statistic for measuring growth and contraction of the economy • Total dollar value of all goods and services produced within a country in one year • Production, not sales • Nominal GDP is expressed in current dollars • Real GDP is adjusted for inflation (price changes)

7. Components of GDP • C = Personal consumption purchases (2/3 of GDP – This is us! • I = Gross Investment – Business purchases • G = Government Spending (does not included transfer payments) • Transfer payments are something on which the government spends but gets nothing in return • X-M = Exports minus imports • GPD = C + I + G + X - M

8. Limitations of GDP • Population – per capita – may show growth in total (productivity) but not growing as fast as population • Often not timely and can be very inaccurate • Underground economy not included • “Under the table work” • Unpaid work • Illegal activity

10. The Multiplier Effect • Definition: The process through which an initial expenditure results in a magnified GDP increase because of the sequence of spending that is generated.

11. Multiplier Effect continued • The spending of money on a purchase keeps on going • The receiver of the money spends it on goods and services • The next receiver spends it again and so on and so on and so on… • The amount gradually diminished because of our tendency to spend part and save part

12. Example • If the multiplier is 4 and you spend $25,000 on a new car, GDP will increase by $100,000 • 4 x 25,000 = 100,000

13. US GDP in billions

14. Measuring Recovery

16. US GDP per capita

17. Top 20 nations by GDP

18. Highest and Lowest GDPs