Measuring the Economy 10.1

1. Measuring the Economy 10.1 • Measure a line you use=Ruler • Measure your temperature • Use a = Thermometer • Measure your weight=Bathroomscales • Measure the U.S.Economy=(GDP) • Gross Domestic Product

2. Gross Domestic Product 10.1 • National Income Accounting—Tracks income, and consumption in a nation’s economy. • Gross Domestic Product (GDP)-The total dollar value of all final goods and services produced within a country during one calendar year.

3. Gross Domestic Product 10.1 • Final Output—This is used to avoid counting products more than once; • Ex. Woodcutter cuts down a tree ($100) • Sawmill processes into lumber ($200) • Furniture maker turns into table ($450) • Furniture dealer sells table for $750 • Consumer purchases the table and the value of the finished product is counted. What is the final value counted for GDP?? • $1450 • $750

4. Gross Domestic Product 10.1 • Current Year—GDP does not count products such as used cars, second hand clothing, (already been counted). • Output Produced within our national borders. • Ex. Coca Cola produced in Russia not included • Does include foreign products made in this country.

5. Output Expenditure Model 10.1 • GDP includes: • Personal consumption expenditures (C) • Gross Investment ( I ) (Business) • Government purchases of goods and services ( G ). • Exports minus imports ( X-M ). • C+I+G+(X-M)=GDP

6. GDP Factors 10.1 • Personal consumption expenditures- • Consumer purchases • Durable goods (life of > 1 years) ex. Cars • Nondurable goods (< 1 year) ex. Food • Gross Investment—total of all capital goods produced in 1 year in a country. • Fixed investment—housing, buildings, equipment • Inventory investment—Increase/decrease in total $ in raw materials, final goods, etc.

7. GDP Factors 10.1 • Government Purchases—Total $ that local, state, federal governments spend on goods and services. • Ex. Highways, education, national defense • Government aid does not count (it only transfers wealth).

8. GDP Factors 10.1 • Net Exports—The $ value of goods and services produced within the U.S. borders. • Total exports subtracted from total imports • (X-M)

9. Adjusting GDP for Price Increases 10.1 • As prices increase, so does GDP. Therefore, economists must calculate GDP in terms of nominal and real prices • Nominal GDP—Expressed in current prices of the period being measured. • Real GDP—Adjusted for price changes. • Price Index—set of statistics that allows economists to compare prices over time.

10. Limitations of GDP 10.1 • Accuracy and Timeliness of Data— • Gathering data is slow and time consuming • Figures can change and need adjusting • Non-Market Activities—GDP measures only market transactions. Ex. Household chores not included. • Underground Economy—Illegal and unreported legal activities.

11. Gross Domestic Product (GDP) • What was the U.S. GDP for 2008?___ • Who was # 2?________ $_________ • Who was # 3?________ $_________ • Who was # 4?________ $_________ • Who was # 5?_________ $_________

12. World GDP Leaders 2006 • United States $_13.202 Trillion • Japan $ 4.3 Trillion • Germany $ 2.9 Trillion • China $ 2.6 Trillion • UK $ 2.3 Trillion • Canada $ 1.2 Trillion • Mexico $ 839 Billion