1. GDP: Measuring the National Economy

2. Georgia Performance Standard
SSEMA1 The student will illustrate the means by which economic activity is measured.
a. Explain that overall levels of income, employment, and prices are determined by the spending and production decisions of households, businesses, government, and net exports.
b. Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation, stagflation, and aggregate supply and aggregate demand.
c. Explain how economic growth, inflation, and unemployment are calculated.
d. Identify structural, cyclical, and frictional unemployment.
e. Define the stages of the business cycle; include peak, contraction, trough, recovery, expansion as well as recession and depression.
f. Describe the difference between the national debt and government deficits.

3. Gross Domestic Product (GDP)
the market value of all final goods and services produced within a country in a given period of time.

4. Gross Domestic Product (cont.)
Intermediate goods, secondhand sales, and nonmarket transactions are excluded from GDP.
GDP tells nothing about the composition of output or the impact of production on quality of life.
Despite its limitations, GDP is still the best measure of overall economic health.

5. Computing GDP
The most common approach to measuring and understanding GDP is the expenditure method:
GDP = consumption + government spending + investment (business) + Net Exports (exports − imports)
GDP = C + G + I + NX

6. Importance of GDP
Allows a nation to compare its economy to that of other nations.
Can be used to compare with past years using Real GDP and applying the GDP price deflator.*

7. GDP Rankings (2016)
1 United States $18, ,000,000 2 China $11,383,000,000,000 3 Japan $4,412,000,000,000 4 Germany $3,467,000,000,000 5 United Kingdom $2,755,000,000,000

8. Business Cycle

9. Business Cycles in the U. S.
The business cycle consists of two phases: expansion and contraction.
Contraction begins with a peak and ends with a trough.
Expansion is the recovery from a recession.

10. Business Cycles
A recession is 6 consecutive months of being in the contraction phase
i.e. declining GDP
6 months = 2 quarters
If a recession becomes very severe, it can turn into a depression.
The worst depression in U.S. history was the Great Depression, which began in 1929.

11. New Deal
WWII Starts
Expansion / Recovery
Contraction / Recession

12. Recession Recovery Recession Recovery The Business Cycle Expansion
Contraction
Expansion
Contraction
Peak
Peak
Recession
Recovery
Recovery
Recession
Trough
Trough
Trough

13. Questions?