Read P. 301-305 (up to “Other Income and Output Measures”)

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Gross Domestic Product and Growth

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Presentation transcript:

Read P (up to “Other Income and Output Measures”)

The concept: if a nation produces more goods and services from one year to the next, it can generally be said that the economy is growing… A growing economy creates jobs… People who live in an ever-growing economy enjoy a rising standard of living

A healthy, growing economy is a MAJOR goal that we all share because we all want to live better, more comfortable lives.

5 statistics are used… we’ll focus only on GDP

Gross Domestic Product (GDP) is the broadest measure of a nation's total economic activity GDP represents the dollar value of all goods and services produced within a nation's geographic borders over a specified period of time From Investopedia

1. by adding up what everyone earned in a year (income method) 2. by adding up what everyone spent in a year (expenditure method) (Logically, both measures should arrive at roughly the same total)

Measures value of the stuff we produce… not the quantity OR quality (GDP is currently approx. $17 trillion): $ 17,000,000,000

C onsumer spending: What we spend on everything from gum to private jet airplanes I nvestment by business: What business spends on new equipment, labor, buildings, software, etc. G 0vernment spending : What government spends on defense, Social Security, Medicare, etc. X …net exports : The difference between what we sell overseas and what we buy from overseas

Does NOT take into account: 1. Non-market activities (things we do for ourselves…mowing the lawn, etc) 2. Underground economy: black mkt., illegal drugs, weapons, stolen cars, etc. 3. Quality of life…growing GDP does not automatically mean higher std. of living for citizens

HOW? It does not represent higher output Explanation: Imagine an ice cream cone cost $1.00 last year….and now it costs $2.00 GDP has doubled… but we haven’t produced twice as many ice cream cones, have we?

A mathematical computation used to remove the effects of inflation (don’t panic…you don’t have to do the computation… just know that it IS used) The resulting number is called “Real GDP”

Just as we might monitor our blood pressure as a way of assessing our overall health, we monitor how the economy is performing to see if it is expanding (growth) or contracting (negative growth) Remember: growth creates jobs and leads to a higher std. of living