Review Identify the 3 key parts of the definition of GDP How do we use GDP Identify what is NOT included in GDP List the 4 components of GDP Define Inflation Explain the difference between Nominal and Real GDP Name 5 of the 10 Most Popular Movies of All Time

Review We count only the final retail price of a new good or service in GDP. Why? A purely financial transaction will not be counted in GDP. Why? When a homeowner does home-improvement work, the value of the labor is not counted in GDP. Why?

ECONOMIC GROWTH

Economic Growth Economic growth refers to the long-term overall improvements in a nation’s economy and standard of living. This would be seen as an increase of the nation’s Real GDP over a period of time.

Economic Growth Because population growth can distort the numbers for the GDP, economist use per capita. The real GDP per capita is an increase in the real dollar value of all final goods and services that are produced per person

Real GDP per capita

Real GDP per capita

Economic Growth Economic growth is a goal of the United States. Three major reasons for this goal:

1. Maintain a High Standard of Living A people’s standard of living is their economic well-being. People have more money to spend People have leisure time for vacation and volunteerism Generally see reduction in crime.

2. To Compete in Global Markets Historically the United States has been the world’s leading industrial power. We must grow economically to maintain that position. Threats from other nations, principally China, are attacking our position.

3. Provide Resources for Domestic Problems Increased tax revenue. More money for: Schools National Fire/Police Defense

Economic Growth There are 4 main requirements for economic growth:

4 Requirements for Economic Growth 1. Natural Resources The United States has an abundance of natural resources; however, We do depend on foreign markets for some vital resources to our economy.

4 Requirements for Economic Growth 2. Human Resources The United States has a large active population from which to draw a labor force

4 Requirements for Economic Growth 3. Capital Resources The more machinery, factories, and production plants in a nation, the more it is likely to produce and the more its economy will grow.

4 Requirements for Economic Growth 4. Entrepreneurship Entrepreneurs create new products, new markets, and new jobs, all of which contribute to increased production and demand.