1. For all countries there are three major economic goals:
Promote Economic Growth
Limit Unemployment
Keep Prices Stable (Limit Inflation) 1

3. How do we know how well the economy is doing?
Economists collect statistics on production, income, investment, and savings.
*National income accounting.
The most widely used measure of growth is GDP.
Gross Domestic Product (GDP) is the dollar value of all final goods and services produced within a country’s borders in one year. 3

4. Sum of wages, interest, rent and profit arising from production.
CALCULATING GDP
Expenditure Approach
C+I+G+(X-M) = GDP
Income Approach
Sum of wages, interest, rent and profit arising from production.

5. Consumption Expenditure Approach 1. Purchases by consumers of goods
and services.
2. Durable v. Non-Durable
3. ~ % of GDP
4. Spend 90-93% of DPI
5. Result of fluctuations in
the economy.

6. In the U.S., Consumer Spending Continues Steady Climb

7. Investment 1. Business spending on new equipment 2. New housing
3. Inventory

8. Government
Purchases for goods and services by all levels of government.

10. Net Exports (X-M) Net exports = exports-imports
Net exports > 0 = trade surplus
Net exports < 0 = trade deficit

11. Trade by the numbers…
The Nation's international trade deficit in goods and services increased to $48.3 billion in August from $41.8 billion in July (revised), as exports decreased and imports increased.

12. What is NOT included in GDP?
Intermediate Goods
No Multiple Counting, Only Final Goods
EX: Price of finished car, not the radio, tire, etc.
2. Nonproduction Transactions
Financial Transactions (nothing produced)
Ex: Stocks, bonds, Real estate
Used Goods
Ex: Old cars, used clothes
3. Non-Market (Illegal) Activities
Ex: Illegal drugs, unpaid work

14. Included or not Included in GDP?
For each situation, identify if it is included in GDP the identify the category C, I, G, or Xn
$10.00 for movie tickets
$5M Increase in defense expenditures
$45 for used economics textbook
Ford makes new $2M factory
$20K Toyota made in Mexico
$10K Profit from selling stocks
$15K car made in US, sold in Canada
$10K Tuition to attend college
$120 Social Security payment to Bob
Farmer purchases new $100K tractor

15. Included or not Included in GDP?
$10.00 for movie tickets
$5M Increase in defense expenditures
X $45 for used economics textbook
Ford makes new $2M factory
X $20K Toyota made in Mexico
X $10K Profit from selling stocks
$15K car made in US, sold in Canada
$10K Tuition to attend college
X $120 Social Security payment to Bob
Farmer purchases new $100K tractor

17. Compare to previous years (Is there growth?)
How do you use GDP?
Compare to previous years (Is there growth?)
Compare policy changes (Did a new policy work?)
Compare to other countries (Are we better off?)

18. How can you measure growth from year to year?
% Change
in GDP =
Year 2 - Year 1
Year 1
X 100
Mordor’s GDP in 2013 was $4000
Mordor’s GDP in 2014 was $5000
What is the % Change in GDP?
Transylvania’s GDP in 2013 was $2,000
Transylvania’s GDP in 2014 was $2,100 18

19. GDP -- the market value of the production of goods and services in the United States -- increased ______ percent, or _____ billion, between 2014 and 2015.
2014
17,348
2015
17,947

22. Real GDP Nominal/Deflator x 100 GDP Deflator
($ of selected goods this year) x 100
$ of selected goods in base year
*Measures the average price of all goods & services in the economy.*

23. If real GDP is $200 billion and the deflator is 120, what is the nominal GDP?
If nominal GDP is 300 billion and the deflator is 150, what is the real GDP?

25. What are the limitations of GDP?

27. Does GDP accurately measure standard of living?
Real GDP per capita (per person)
Real GDP per capita = Real GDP/Total Population 27

28. Most populated countries

29. GDP Per Capita