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Gross Domestic Product

Gross Domestic Product. EQ: How do we measure a nation’s wealth?. Intro Video. Definition of GDP. Gross Domestic Product “ GDP is the total market value of all final goods and services produced within a country in a given period of time .” Activity:

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Gross Domestic Product

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  1. Gross Domestic Product EQ: How do we measure a nation’s wealth?

  2. Intro Video

  3. Definition of GDP • Gross Domestic Product • “GDP is the total market value of all final goods and services produced within a country in a given period of time.” • Activity: • Breakdown the following parts of the definition. What does each mean? • total market value • Of all • final goods and services • within a country • in a given period of time

  4. With a partner, what is included in GDP?

  5. What is NOT included in GDP?

  6. The components of GDP GDP is the sum of the following: • Consumption (C) • Investment (I) • Government Purchases (G) • Net Exports (NX) GDP = C + I + G + NX • Why does GDP = Y? Think back, way back…. Y =

  7. Remember this? • Every transaction has a buyer and a seller. • Every dollar of spending by some buyer is a dollar of income for some seller.

  8. Components of GDP • Consumption (C): • The spending by households on goods and services, with the exception of purchases of new housing. • Investment (I): • The spending on capital equipment, inventories, and structures, including new housing. • Government Purchases (G): • The spending on goods and services by local, state, and federal governments. • Does not include transfer payments because they are not made in exchange for currently produced goods or services. • Net Exports (NX): • Exports minus imports.

  9. GDP Scenarios • Come up with 5 scenarios that increase or decrease the GDP • C, I, G, NX, and one that doesn’t count in GDP • 5 volunteers • Each volunteer holds their sign up if it increases their component of GDP or down if it decreases.

  10. Review • What country has the absolute adv in computers? Calculators? • What country has the comparative adv in computers? Why? Calculators? Why? • For terms of trade, should the U.S. accept 180 calculators for 1 computer?

  11. What is the percentage breakdowns for the U.S. (yes, this means math)?

  12. What does this say about our economy?

  13. Real vs Nominal GDP • Nominal GDP values the production of goods and services at current prices. • Real GDP values the production of goods and services at constant prices.

  14. Nominal GDP What is NOMINAL GDP for each year?

  15. REAL GDP

  16. REAL GDP? What is REAL GDP for each year using 2005 base year?

  17. GDP Deflator What is the GDP deflator for 2005, 2006, and 2007 using our previous example?

  18. GDP Deflator (cont). Using the GDP Deflator for 2007, show the calculations to find real GDP. Did it match your original calculation for 2007 GDP?

  19. POP Quiz • Also, compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2006 and 2007 from the preceding year. • Did economic well-being rise more in 2006 or 2007? Explain?

  20. Is GDP a good measure of economic well-being? • GDP is the best single measure of the economic well-being of a society. • GDP per person tells us the income and expenditure of the average person in the economy. • Higher GDP per person indicates a higher standard of living. • GDP is not a perfect measure of the happiness or quality of life, however.

  21. What does GDP not tell us? • Some things that contribute to well-being are not included in GDP. • The value of leisure. • The value of a clean environment. • The value of almost all activity that takes place outside of markets, such as the value of the time parents spend with their children and the value of volunteer work.

  22. Some perspective…

  23. Summary • Guided Practice • P. 526 #5

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