Introduction Mr. Warner Economics

What you will learn in this Module: How can you contact me? What material will we use? What will we do? What expectations do we have?

Contact Email: davidwarner@kcis.com.tw I will do my best to quickly respond to any emails sent between 7am and 8pm Monday through Friday. I will check my work email once or twice during the weekend. If there are any emergencies, send me an email as soon as you know, but take care of yourself. We can decide what to do when you get back. GDP is really a P*Q measure. You take the quantity of output (Q) and multiply by the price of the output (P). If prices rise, and Q stays the same, GDP will increase. This is misleading because the true size of the economy hasn’t increased, it has just gotten more expensive. To adjust for changing prices, we create Real GDP, which calculates the value of current production, but using prices from a fixed point in time. This fixed point in time is called the base year. Valuing 2009 production at 2008 prices creates real GDP in 2009 and allows us to compare it back to 2008 (the base year). This is also known as constant-dollar GDP.   Note: The instructor can now show the real GDP numbers for the same years from the table of nominal GDP numbers. Explain which year is the base year. Then show how the real size of the economy has changed from the 1980s to recent years.

Additional materials available on my website at teachingwarner.com Class Information Syllabus – Managebac Additional materials available on my website at teachingwarner.com Suppose an economy consists of only two commodities. The table above shows prices and output levels for two recent years. Note: The instructor might want to select two goods/services that are relevant to the local community or state. Nominal GDP in each year multiplies current prices by current levels of output.   In this simple economy, nominal GDP has risen by $6100. In % terms: (20,100 – 14,000)/14,000 = .436 or 43.6% WOW! The politicians will really be proud of themselves!!! But was this increase due to a fundamental increase in output, or was it due to higher prices? Let’s hold prices constant at 2007 levels and compute the value of real GDP. By choosing to use 2007 prices, we have made 2007 our base year. Notice that nominal GDP = real GDP in the base year of 2007. Now we compute real GDP in 2008 by using output in 2008, but at prices from 2007. Real GDP 2008 = $15,000, so in real terms the value of the economic output has only risen by $1000 In % terms: (15,000 – 14,000)/14,000 = .071 or 7.1% Note: The instructor could add a third year where real GDP actually falls and introduce the class to what it means when the data indicates a recession.

Classroom Rules You are senior high school students. Adulthood comes from responsibility. Responsibility requires freedom. We should already know the basic rules. However, there are two special rules that I deeply care about. Note: Stress to the students that GDP, and real GDP, are just statistical measures. They are positive, not normative. They should not be used to measure a nation’s self-esteem, or sense of overall happiness.   Many of the things that make people happy do not contribute to this statistic. Taking time off from work to coach your child’s soccer team. Volunteerism detracts from GDP. Many forms of leisure do not contribute to GDP. Read a book, take a walk, play catch with your child and you are hurting the economy. Work around the house. If you rake your own leaves, rather than hire a company to do it, you detract from GDP. If you decided to drop out of the labor force to help raise kids, you detract from GDP. Some things that contribute to GDP don’t make us happier. Spending money to put bars in your windows because your neighborhood is unsafe will add to GDP. Likewise, imagine two economies. One is based upon the buying/producing of assault rifles and one is based upon the buying/producing of ice cream. Both will add to GDP, but which is “better”? Cleaning up after a natural disaster (Katrina, or a snow storm) will add to GDP. Spending money to fight preventable diseases (emphysema) will add to GDP.

Consequences are already established by school policy. Number 1 Intellectual Honesty Why? When? Consequences are already established by school policy. GDP is really a P*Q measure. You take the quantity of output (Q) and multiply by the price of the output (P). If prices rise, and Q stays the same, GDP will increase. This is misleading because the true size of the economy hasn’t increased, it has just gotten more expensive. To adjust for changing prices, we create Real GDP, which calculates the value of current production, but using prices from a fixed point in time. This fixed point in time is called the base year. Valuing 2009 production at 2008 prices creates real GDP in 2009 and allows us to compare it back to 2008 (the base year). This is also known as constant-dollar GDP.   Note: The instructor can now show the real GDP numbers for the same years from the table of nominal GDP numbers. Explain which year is the base year. Then show how the real size of the economy has changed from the 1980s to recent years.

Number 2 GDP is really a P*Q measure. You take the quantity of output (Q) and multiply by the price of the output (P). If prices rise, and Q stays the same, GDP will increase. This is misleading because the true size of the economy hasn’t increased, it has just gotten more expensive. To adjust for changing prices, we create Real GDP, which calculates the value of current production, but using prices from a fixed point in time. This fixed point in time is called the base year. Valuing 2009 production at 2008 prices creates real GDP in 2009 and allows us to compare it back to 2008 (the base year). This is also known as constant-dollar GDP.   Note: The instructor can now show the real GDP numbers for the same years from the table of nominal GDP numbers. Explain which year is the base year. Then show how the real size of the economy has changed from the 1980s to recent years.

Number 2 Intellectual Safety What were we born knowing how to do? Everybody is ignorant of something. Consequences GDP is really a P*Q measure. You take the quantity of output (Q) and multiply by the price of the output (P). If prices rise, and Q stays the same, GDP will increase. This is misleading because the true size of the economy hasn’t increased, it has just gotten more expensive. To adjust for changing prices, we create Real GDP, which calculates the value of current production, but using prices from a fixed point in time. This fixed point in time is called the base year. Valuing 2009 production at 2008 prices creates real GDP in 2009 and allows us to compare it back to 2008 (the base year). This is also known as constant-dollar GDP.   Note: The instructor can now show the real GDP numbers for the same years from the table of nominal GDP numbers. Explain which year is the base year. Then show how the real size of the economy has changed from the 1980s to recent years.

Class Contract What rules do you want or expect in this classroom, and what consequences do you feel are suitable? Brainstorm Share Vote Sign Note: Stress to the students that GDP, and real GDP, are just statistical measures. They are positive, not normative. They should not be used to measure a nation’s self-esteem, or sense of overall happiness.   Many of the things that make people happy do not contribute to this statistic. Taking time off from work to coach your child’s soccer team. Volunteerism detracts from GDP. Many forms of leisure do not contribute to GDP. Read a book, take a walk, play catch with your child and you are hurting the economy. Work around the house. If you rake your own leaves, rather than hire a company to do it, you detract from GDP. If you decided to drop out of the labor force to help raise kids, you detract from GDP. Some things that contribute to GDP don’t make us happier. Spending money to put bars in your windows because your neighborhood is unsafe will add to GDP. Likewise, imagine two economies. One is based upon the buying/producing of assault rifles and one is based upon the buying/producing of ice cream. Both will add to GDP, but which is “better”? Cleaning up after a natural disaster (Katrina, or a snow storm) will add to GDP. Spending money to fight preventable diseases (emphysema) will add to GDP.