The U.S. Economy

Gross Domestic Product (GDP) Gross Domestic Product (GDP) is the total value of final goods and services produced within a nation’s borders in a given time period. It is a summary measure of a nation’s output.

International Comparisons With just 5% of the world’s population, the U.S. economy produces over 20% of the entire planet’s output. The U.S. economy is two and a half times larger than Japan’s, the world’s third-largest.

International Comparisons The U.S. economy is twelve times larger than Mexico’s. U.S. output exceeds by a wide margin the combined production of all countries in Africa and South America.

How Much Output Nations Produce

Per Capita GDP Per capita GDP is total GDP divided by total population: average GDP. It is an indicator of how much output each person would get if all output were divided evenly among the population.

Per Capita Incomes Around the World (2016)

Historical Comparisons People who the U.S. government currently classifies as poor: Enjoy a much higher living standard than the human masses in Third World nations. Are also more comfortable than the average American family was in the 1950s.

Consumer Goods Consumer goods account for two-thirds of total U.S. output. There are three types of consumer goods: Durable goods Nondurable goods Services

Consumer Goods Durable goods - expected to last three years. They tend to be big-ticket items like cars, appliances, and furniture. Purchases of durable goods are often cyclical, that is, very sensitive to economic trends.

Consumer Goods Nondurable goods - items that are bought frequently. They include clothes, food, and gasoline. Services - the largest and fastest- growing component in consumption. Over half of all consumer output consists of medical care, entertainment, utilities, and other services.

Investment Goods Investment goods are used: To replace worn-out equipment and factories, thus maintaining our production possibilities. To increase and improve our stock of capital, thereby expanding our production possibilities.

Government Services (Socialism) Federal, state, and local governments purchase resources to police the streets, teach classes, write laws, and build highways. These resources are not available for consumption or investment.

Growth of Services America has largely become a service economy. Total service industries (including government) generate over 70% of total output. Between 2005 and 2115, 98% of net job growth will be in service industries.

Growth in Trade Increasing globalization of the U.S. economy is likely to continue due to: Removal of trade barriers. Advances in communications and transportation technologies. Increased consumption of services.

Factors of Production The U.S. has ample resources to produce goods and services: Third-largest population in the world. World’s fourth-largest land area. Profuse natural resources (e.g., oil, fertile soil, hydropower).

Business Organization The three different legal organizations: Corporations - owned by many individuals, each of whom owns shares (stock) of the corporation. Partnerships - owned by a small number of individuals. Proprietorships - owned by one individual.

Corporate America Corporations tend to be much larger than other businesses and produce the largest portion of GDP. Proprietorships are the most numerous but produce a small portion of GDP.

Government Regulation Government plays a large role in deciding WHAT, HOW, and FOR WHOM goods are produced by: Providing a Legal Framework Protecting Consumers Protecting Labor Protecting the Environment

Providing a Legal Framework By establishing: ownership rights, contract rights, rules of the game, the government lays the foundation for market transactions. EX: Securities and Exchange Commission

Protecting Consumers The government tries to protect consumers from a monopoly: Monopoly - a firm that produces the entire market supply of a particular good or service. Antitrust laws prohibit mergers or acquisitions that threaten competition.

Protecting Consumers The U.S. Department of Justice and the Federal Trade Commission also regulate pricing practices and advertising claims. The government ensures the safety of products by requiring testing of new drugs, food additives, and other products.

Protecting Labor Child labor laws prevent the exploitation of children. Labor has the right to organize and set rules for union-management relations.

Protecting the Environment Historically the environment was not protected. Decisions on how to produce were based on costs alone, not on how the environment is affected. This resulted in air, water, and noise pollution.

Protecting the Environment Without government intervention, these side effects of production would be common. Decisions on how to produce would be based on private costs alone, not on how the environment is affected.