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CHAPTER 13 ECONOMIC PERFORMANCE

CHAPTER 13 ECONOMIC PERFORMANCE. I. MEASURING THE NATION’S OUTPUT. The United States has the highest Gross Domestic Product in the world. In 2001 its GDP reached $9.4 trillion, up from $9.1 trillion in 2000. A. GDP—THE MEASURE OF NATIONAL OUTPUT.

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CHAPTER 13 ECONOMIC PERFORMANCE

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  1. CHAPTER 13 ECONOMIC PERFORMANCE

  2. I. MEASURING THE NATION’S OUTPUT • The United States has the highest Gross Domestic Product in the world. In 2001 its GDP reached $9.4 trillion, up from $9.1 trillion in 2000.

  3. A. GDP—THE MEASURE OF NATIONAL OUTPUT 1. 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. 2. Intermediate goods, secondhand sales, and non-market transactions are excluded from GDP. 3. GDP tells nothing about the composition of output or the impact of production on quality of life. 4. Despite its limitations, GDP is still the best measure of overall economic health.

  4. B. GNP—THE MEASURE OF NATIONAL INCOME 1. Gross National Product (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. 2. Net National Product (NNP) is equal to GNP minus depreciation. 3. National Income (NI) is equal to NNP minus all taxes paid by businesses other than the corporate profits tax.

  5. B. GNP—THE MEASURE OF NATIONAL INCOME continued 4. Personal Income (PI) is the total amount of income received by individuals before taxes. 5. Disposable Personal Income (DI) is PI less taxes.

  6. C. ECONOMIC SECTORS AND CIRCULAR FLOWS 1. The consumer sector includes individuals/households. 2. The investment sector includes businesses. 3. The government sector includes local, state, and federal levels of government. 4. The foreign sector includes all consumers and producers outside the United States.

  7. D. THE OUTPUT-EXPENDITURE MODEL 1. The output-expenditure model is a macroeconomic model used to show aggregate demand by all the economic sectors. 2. The equation for the output-expenditure model is GDP = C+I+G+F. 3. Each sector spends its income on different types of goods and services.

  8. II. GDP AND CHANGES IN THE PRICE LEVEL • 1999, classrooms around the country helped create a market basket of goods and services used by teenagers. The data was used to create a Teenage Consumer Price Index (TCPI).

  9. A. CONSTRUCTING A PRICE INDEX 1. A price index is used to measure changes in prices over time. 2. A price index is created by selecting a base year and a representative market basket of goods.

  10. B. MAJOR PRICE INDICES 1. The consumer price index (CPI) reports changes in the prices of 80,000 consumer goods and services. 2. The producer price index (PPI) reports changes in prices received by domestic producers for 3,000 commodities. 3. The GDP price deflator is an index of average prices for all goods and services.

  11. C. REAL VS. CURRENT GDP 1. Real GDP is calculated by dividing current GDP by the implicit GDP price deflator and multiplying by 100. 2. Converting current GDP into real GDP is useful for comparing GDP over time.

  12. III. GDP AND POPULATION • By April 2000, the population of the United States stood at about 281.4 million people. According to the Census Bureau, that figure will rise to 380 million people by 2050.

  13. A. POPULATION IN THE UNITED STATES 1. A census is an official count of all people, including their places of residence. 2. The Census Bureau conducts surveys every month and a full census every 10 years. 3. The Census Bureau tabulates and presents its data in two classifications: the urban population and the rural population.

  14. A. POPULATION IN THE UNITED STATES continued 4. The rate of population growth in the United States has been declining since at least 1860, falling to just 0.9 percent by 2002. 5. The Census Bureau tracks geographic distribution of population and reports that the population is growing in the West and South and shrinking in the Northeast and Central Plains regions. 6. The Census Bureau tracks the shifts in the center of population, or the point where the country would balance if it could be laid flat and people all weighed the same.

  15. B. PROJECTED POPULATION TRENDS 1. Factors that affect population are the fertility rate, life expectancy, and net immigration. 2. The dependency ratio will rise as a result of the aging of the baby boom generation. 3. Factors that affect population will also affect the racial and ethnic makeup of the United States.

  16. IV. ECONOMIC GROWTH • Beginning in 1991, the United States enjoyed the longest period of prosperity in its history, with the economy growing at a robust 3.9 percent in 1999.

  17. A. Economic Growth in the United States 1. Economic growth is best measured by real GDP per capita. 2. Real GDP per capita has grown somewhat more slowly than total real GDP.

  18. B. IMPORTANCE OF ECONOMIC GROWTH 1. Economic growth increases the standard of living. 2. Economic growth increases the tax base, allowing the government to provide more and better-quality public services. 3. Economic growth helps reduce poverty and related problems.

  19. B. IMPORTANCE OF ECONOMIC GROWTH continued 4. Economic growth increases U.S. demand for imports, which helps create jobs and generate income in foreign countries. 5. Economic growth in the United States encourages other countries to adopt market economies.

  20. C. FACTORS INFLUENCING ECONOMIC GROWTH 1. Natural (and renewable) resources, including land and minerals, contribute to economic growth. 2. A high capital-to-labor ratio contributes to economic growth. 3. Skilled and growing labor force contributes to economic growth. 4. Entrepreneurs contribute to economic growth.

  21. D. PRODUCTIVITY AND GROWTH 1. Productivity has increased in the United States since 1959, with large increases occurring since 1996. 2. Declines in productivity hurt the economy.

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