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Measuring the Nation’s Economic Output

Measuring the Nation’s Economic Output. The measure of what a nation produces is in many ways a measure of its standard of living, the wealth of its people and ultimately its power. Gross Domestic Product. Single most important statistic, measuring overall economic performance.

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Measuring the Nation’s Economic Output

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  1. Measuring the Nation’s Economic Output The measure of what a nation produces is in many ways a measure of its standard of living, the wealth of its people and ultimately its power.

  2. Gross Domestic Product • Single most important statistic, measuring overall economic performance. • All final goods and services produced within US borders in one year. • Measured by multiplying each component by prices, by volume, for total value of production.

  3. John Maynard Keynes General Theory of Employment, Interest & Money Great Depression inspired work Keynesian Economics – Collapses in business spending could be offset by government spending, funded by taxes or borrowing, whenever hard times required intervention. Many terms he “coined”, we still use today, GDP – Gross Domestic Product.

  4. Commerce Department Tracks It • Cabinet level agency tracks progress in the economy and evaluates long-term business trends. • Tracks or estimates Production, Consumption, Savings and Investment. • Records help make adjustments to policy, to promote national and personal prosperity

  5. Possible Policy Adjustments Knowing our Gross Domestic Product number helps us assess… • Trade Balance – Positive vs. Negative What does it mean to have a positive trade balance? • Mix of Industry and Services in the economy Why is it important to know a country’s mix?

  6. Production Within the US All US produced goods and services count. Would the following examples count in US GDP? …Japanese cars made in Tennessee? …pineapples canned in Hawaii? …tech service for Dell computers by phone from New Delhi, India?

  7. Components of GDP • Goods Cars Computers Women’s clothes • Services Lawyers Software Consultants Advertising Salespeople • Structures Office Buildings Single Family Homes Shopping Malls

  8. What’s Not Included in GDP? “Intermediate” products – those used in the making of other finished goods. “Secondhand” sales – Used products sold to a second or third buyer. No new wealth is created. _________________________________________ What are some examples of intermediate products? What products could fit into both the new (included) and the intermediate (not included) product categories?

  9. Other GDP Considerations • Slow to report all details Takes months to report all aspects - #s lag a bit • Composition of output Are we making things the world wants? • Quality of Life Do we expand at the expense of the environment? • Excludes non-market activities • Illegal activities where money is exchanged

  10. What Can’t Be Included in GDP? • Non-market transactions & activities - Value of mowing ones own lawn… - Installing one’s own car stereo… - Cooking, cleaning & maintaining one’s home Would they be included if you paid to have it done? What else wouldn’t be counted? • Underground Economy

  11. Ups and Downs in GDP Are decreases in GDP always indicators of bad performance? Examples? Are increases always indicators of progress? Examples?

  12. Importance of GDP • Good indicator of economy’s overall performance and its general health. • Changes in GDP, both positive and negative, can tell leaders whether economic policies are working.

  13. Questions on GDP • How is GDP measured? • How do leaders use GDP? • Under what circumstances would society benefit from a lowered GDP?

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