1. Is This Part of GDP?
GDP is made up of many different factors. While working in pairs, decide whether you think each economic event below is included in GDP or excluded from GDP. If you think it is included, place an “I” in the blank. If you think it is excluded, place an “E” in the blank.
Click “Forward” to see the list.

2. Is This Part of GDP?
GDP is made up of many different factors. While working in pairs, decide whether you think each economic event below is included in GDP or excluded from GDP. If you think it is included, place an “I” in the blank. If you think it is excluded, place an “E” in the blank.
Show Answers
7) Pepsi donates money to the Susan G. Komen Foundation.
1) Hair cut is purchased.
2) Honda purchases steel for producing new cars.
3) Dell Computers sells computers to Japan.
4) McDonald’s purchases a brand new grill.
5) Macy’s pays its employees an hourly wage.
6) Students purchase airplane tickets to Hawaii.
8) A stereo is purchased on e-Bay.
9) Citizens pay property tax.
10) Government buys supplies for the military.
11) Stay-at-home mothers create community garden.
12) Chevrolet purchases a new factory.
13) Ben & Jerry’s purchases milk for making ice cream.
14) Wall Street traders purchase stocks.
15) Ford Motor Company pays for the land it uses in production.
16) U.S. citizens purchase oil from Saudi Arabia.
17) Wells Fargo Bank gives a student loan.
18) Wells Fargo Bank is paid interest for the loan it made to Wal-Mart.
19) Owner of NFL team makes millions in profits.
20) Lemonade is sold at a neighborhood lemonade stand by 8-year olds.
____
Give students time to come up with answers. They can work in pairs, individually, groups, or however you want. They should have some success with this activity since they have hopefully been exposed to the concept of GDP in a previous social studies class. Before showing the answers, feel free to ask students which ones they were unsure about and come up with a solution as a class. An answer key document is included for reference.

3. Is This Part of GDP?
GDP is made up of many different factors. While working in pairs, decide whether you think each economic event below is included in GDP or excluded from GDP. If you think it is included, place an “I” in the blank. If you think it is excluded, place an “E” in the blank.
____ I
1) Hair cut is purchased. E
____
11) Stay-at-home mothers create community garden.
____ E
2) Honda purchases steel for producing new cars.
____ I
12) Chevrolet purchases a new factory.
____ I
3) Dell Computers sells computers to Japan.
____ E
13) Ben & Jerry’s purchases milk for making ice cream. I
____
4) McDonald’s purchases a brand new grill.
____ E
14) Wall Street traders purchase stocks. I
____
15) Ford Motor Company pays for the land it uses in production. I
____
5) Macy’s pays its employees an hourly wage. I
____
6) Students purchase airplane tickets to Hawaii.
____ E
16) U.S. citizens purchase oil from Saudi Arabia. E
____
7) Pepsi donates money to the Susan G. Komen Foundation.
____ E
17) Wells Fargo Bank gives a student loan.
____ I
18) Wells Fargo Bank is paid interest for the loan it made to Wal-Mart.
____ E
8) A stereo is purchased on e-Bay. I
____
19) Owner of NFL team makes millions in profits.
____ E
9) Citizens pay property tax. E
____
20) Lemonade is sold at a neighborhood lemonade stand by 8-year olds.
10) Government buys supplies for the military.
____ I

4. “GDP” Targets
Knowledge 3 Understand the various components of Gross Domestic Product (GDP).
Reasoning 1 Explain why sustained growth in GDP per capita is desirable.
Skill 2 Calculate data regarding GDP.

5. What Is GDP?
The Gross Domestic Product is the value of all final goods and services produced by a country.
Gross National Product (GNP) is not mentioned in this slideshow for the sake of simplicity. GNP is different than GDP because GNP counts every citizen of a particular country--whether they live within the country’s borders or not--and excludes non-citizens within a country’s borders. The concept of GNP is mentioned in some fields of research, but GDP is the more important calculation used by economists.

6. What Is GDP?
The Gross Domestic Product is the value of all final goods and services produced by a country.
1) It is a measure of aggregate output defined in terms of the current price level.

7. What Is GDP?
The Gross Domestic Product is the value of all final goods and services produced by a country.
1) It is a measure of aggregate output defined in terms of the current price level.
2) Useful for making comparisons over time or between countries.

8. What Is GDP?
The Gross Domestic Product is the value of all final goods and services produced by a country.
1) It is a measure of aggregate output defined in terms of the current price level.
2) Useful for making comparisons over time or between countries.
3) GDP only measures final products, not intermediate ones.

9. What Is GDP?
The Gross Domestic Product is the value of all final goods and services produced by a country.
1) It is a measure of aggregate output defined in terms of the current price level.
2) Useful for making comparisons over time or between countries.
3) GDP only measures final products, not intermediate ones.
4) Intermediate products are used up when producing a final product. (Like steel for a car.)

10. What Is GDP?
The Gross Domestic Product is the value of all final goods and services produced by a country.
1) It is a measure of aggregate output defined in terms of the current price level.
2) Useful for making comparisons over time or between countries.
3) GDP only measures final products, not intermediate ones.
4) Intermediate products are used up when producing a final product. (Like steel for a car.)
5) Counting only final products eliminates double counting.

11. What GDP Does Not Measure
It is important to remember that GDP does not include all economic activity. The following items do not get counted when measuring GDP.

12. What GDP Does Not Measure
It is important to remember that GDP does not include all economic activity. The following items do not get counted when measuring GDP.
1) Used goods, such as cars or houses.

13. What GDP Does Not Measure
It is important to remember that GDP does not include all economic activity. The following items do not get counted when measuring GDP.
1) Used goods, such as cars or houses.
2) Financial assets, such as stocks or bonds.

14. What GDP Does Not Measure
It is important to remember that GDP does not include all economic activity. The following items do not get counted when measuring GDP.
1) Used goods, such as cars or houses.
2) Financial assets, such as stocks or bonds.
3) Anything not produced within the country’s borders.

15. What GDP Does Not Measure
It is important to remember that GDP does not include all economic activity. The following items do not get counted when measuring GDP.
1) Used goods, such as cars or houses.
2) Financial assets, such as stocks or bonds.
3) Anything not produced within the country’s borders.
4) Household production or subsistence farming.

16. What GDP Does Not Measure
It is important to remember that GDP does not include all economic activity. The following items do not get counted when measuring GDP.
1) Used goods, such as cars or houses.
2) Financial assets, such as stocks or bonds.
3) Anything not produced within the country’s borders.
4) Household production or subsistence farming.
5) Underground markets or unreported economic activity.

17. What GDP Does Not Measure
It is important to remember that GDP does not include all economic activity. The following items do not get counted when measuring GDP.
1) Used goods, such as cars or houses.
2) Financial assets, such as stocks or bonds.
3) Anything not produced within the country’s borders.
4) Household production or subsistence farming.
5) Underground markets or unreported economic activity.
6) The amount or distribution of wealth in a country.

18. GDP: Production Approach
The first way to calculate GDP is to add up the value of all the final goods produced in the economy.

19. GDP: Production Approach
The first way to calculate GDP is to add up the value of all the final goods produced in the economy.
1) Economists count only each producer’s value added amount.
Value Added = (Sales Price) - (Price of Inputs)

20. GDP: Production Approach
The first way to calculate GDP is to add up the value of all the final goods produced in the economy.
1) Economists count only each producer’s value added amount.
Value Added = (Sales Price) - (Price of Inputs)
a) VA = $1 - $0 = $1
2) For example:
a) A wheat farmer grows a bushel of wheat that costs $1.
In this example the farmer has no input prices to worry about. $1

21. GDP: Production Approach
The first way to calculate GDP is to add up the value of all the final goods produced in the economy.
1) Economists count only each producer’s value added amount.
Value Added = (Sales Price) - (Price of Inputs)
a) VA = $1 - $0 = $1
2) For example:
b) VA = $2 - $1 = $1
a) A wheat farmer grows a bushel of wheat that costs $1.
b) A miller buys the wheat for $1 to turn into flour, which costs $2. $1 $1

22. GDP: Production Approach
The first way to calculate GDP is to add up the value of all the final goods produced in the economy.
1) Economists count only each producer’s value added amount.
Value Added = (Sales Price) - (Price of Inputs)
a) VA = $1 - $0 = $1
2) For example:
b) VA = $2 - $1 = $1
a) A wheat farmer grows a bushel of wheat that costs $1.
c) VA = $5 - $2 = $3
b) A miller buys the wheat for $1 to turn into flour, which costs $2.
c) A baker buys the flour for $2 to turn into bread, which costs $5. $1 $1 $3

23. GDP: Production Approach
The first way to calculate GDP is to add up the value of all the final goods produced in the economy.
1) Economists count only each producer’s value added amount.
Value Added = (Sales Price) - (Price of Inputs)
a) VA = $1 - $0 = $1
2) For example:
b) VA = $2 - $1 = $1
a) A wheat farmer grows a bushel of wheat that costs $1.
c) VA = $5 - $2 = $3
d) VA = $9 - $5 = $4
b) A miller buys the wheat for $1 to turn into flour, which costs $2.
c) A baker buys the flour for $2 to turn into bread, which costs $5.
d) A grocer buys the bread for $5 to sell it to consumers for $9. $1 $1 $3 $4

24. GDP: Production Approach
The first way to calculate GDP is to add up the value of all the final goods produced in the economy.
1) Economists count only each producer’s value added amount.
Value Added = (Sales Price) - (Price of Inputs)
a) VA = $1 - $0 = $1
2) For example:
b) VA = $2 - $1 = $1
a) A wheat farmer grows a bushel of wheat that costs $1.
c) VA = $5 - $2 = $3 +
d) VA = $9 - $5 = $4
b) A miller buys the wheat for $1 to turn into flour, which costs $2. $9
c) A baker buys the flour for $2 to turn into bread, which costs $5.
d) A grocer buys the bread for $5 to sell it to consumers for $9.
3) All sales total $17. But GDP is only value added, which is $9. $1 $1 $3 $4

25. GDP: Expenditure Approach
The second way to calculate GDP is to add up all of the money spent on final goods and services. Spending is divided into four categories.
Though all three methods of calculating GDP are used, the expenditure approach generally receives the most attention.

26. GDP: Expenditure Approach
The second way to calculate GDP is to add up all of the money spent on final goods and services. Spending is divided into four categories.
1) Consumption
Consumer spending on final goods and services is the largest category.
Let students know that we denote consumer spending (consumption) with a “C.” C

27. GDP: Expenditure Approach
The second way to calculate GDP is to add up all of the money spent on final goods and services. Spending is divided into four categories.
1) Consumption
Consumer spending on final goods and services is the largest category.
2) Investment
This describes the fact that firms also spend money on final products. It does not mean financial investment.
Let students know that we denote investment spending with an “I.” + C I

28. GDP: Expenditure Approach
The second way to calculate GDP is to add up all of the money spent on final goods and services. Spending is divided into four categories.
1) Consumption
3) Government
Consumer spending on final goods and services is the largest category.
The government also spends money on final products.
2) Investment
This describes the fact that firms also spend money on final products. It does not mean financial investment.
Let students know that we denote government spending with a “G.” + + C I G

29. GDP: Expenditure Approach
The second way to calculate GDP is to add up all of the money spent on final goods and services. Spending is divided into four categories.
1) Consumption
3) Government
Consumer spending on final goods and services is the largest category.
The government also spends money on final products.
2) Investment
4) Net Exports
This describes the fact that firms also spend money on final products. It does not mean financial investment.
Some products get bought by other countries, but we must subtract products we buy from other countries.
Let students know that we denote exports as an “X” and imports as an “M.” (Many other letters are often used as well.) To find net exports we must subtract the money spent on imports from the money spent on exports. + + + C I G
(X - M)

30. GDP: Income Approach
The third way to calculate GDP is to add up all of the income received by firms from the sale of final goods and services.
The calculations for this method can get complicated. This is a simplified version. Sometimes students have trouble grasping the “income approach” concept. Tell them that all of the money spent on final goods and services must go somewhere, and all of the money spent must be an income for somebody. The four categories listed here are the four (general) ways in which people earn income.

31. GDP: Income Approach 1) Wages W
The third way to calculate GDP is to add up all of the income received by firms from the sale of final goods and services.
1) Wages
Some of the money earned by firms gets paid to workers as wages.
Let students know that we denote wages with a “W.” W

32. GDP: Income Approach + 1) Wages 2) Interest W I
The third way to calculate GDP is to add up all of the income received by firms from the sale of final goods and services.
1) Wages
Some of the money earned by firms gets paid to workers as wages.
2) Interest
Some of the money earned by firms must get paid to the people who have lent the firm money.
Let students know that we denote interest with an “I.” + W I

33. GDP: Income Approach + + 1) Wages 3) Rent 2) Interest W I R
The third way to calculate GDP is to add up all of the income received by firms from the sale of final goods and services.
1) Wages
3) Rent
Some of the money earned by firms gets paid to workers as wages.
Some of the money must be paid to rent the land used for production.
2) Interest
Some of the money earned by firms must get paid to the people who have lent the firm money.
Let students know that we denote rent with an “R.” + + W I R

34. GDP: Income Approach + + + 1) Wages 3) Rent 2) Interest 4) Profit W I
The third way to calculate GDP is to add up all of the income received by firms from the sale of final goods and services.
1) Wages
3) Rent
Some of the money earned by firms gets paid to workers as wages.
Some of the money must be paid to rent the land used for production.
2) Interest
4) Profit
Some of the money earned by firms must get paid to the people who have lent the firm money.
Once wages, interest, and rent have been paid, all of the remaining income is considered profit.
Let students know that we denote profit with a “P.” + + + W I R P

35. Nominal vs. Real GDP
Nominal GDP is the current dollar value for one year’s GDP. Real GDP, however, is much more useful because it is corrected for inflation.

36. Nominal vs. Real GDP
Nominal GDP is the current dollar value for one year’s GDP. Real GDP, however, is much more useful because it is corrected for inflation.
1) Real GDP tells us how much a change in GDP is due to a change in aggregate output.

37. Nominal vs. Real GDP
Nominal GDP is the current dollar value for one year’s GDP. Real GDP, however, is much more useful because it is corrected for inflation.
1) Real GDP tells us how much a change in GDP is due to a change in aggregate output.
Year 1
Year 2
Quantity of Apples
Price of Apple
Nominal GDP
Real GDP 50
2) For example: $1
a) Suppose in Year 1, 50 apples are sold for $1 apiece.

38. Nominal vs. Real GDP
Nominal GDP is the current dollar value for one year’s GDP. Real GDP, however, is much more useful because it is corrected for inflation.
1) Real GDP tells us how much a change in GDP is due to a change in aggregate output.
Year 1
Year 2
Quantity of Apples
Price of Apple
Nominal GDP
Real GDP 50 60
2) For example: $1 $2
a) Suppose in Year 1, 50 apples are sold for $1 apiece.
b) Suppose in Year 2, 60 apples are sold for $2 apiece.

39. Nominal vs. Real GDP
Nominal GDP is the current dollar value for one year’s GDP. Real GDP, however, is much more useful because it is corrected for inflation.
1) Real GDP tells us how much a change in GDP is due to a change in aggregate output.
Year 1
Year 2
Quantity of Apples
Price of Apple
Nominal GDP
Real GDP 50 60
2) For example: $1 $2
a) Suppose in Year 1, 50 apples are sold for $1 apiece.
Calculate
b) Suppose in Year 2, 60 apples are sold for $2 apiece.
c) What is the nominal GDP for Year 1 and for Year 2?
Allow students time to calculate the totals themselves and write them on their note sheets.

40. Nominal vs. Real GDP
Nominal GDP is the current dollar value for one year’s GDP. Real GDP, however, is much more useful because it is corrected for inflation.
1) Real GDP tells us how much a change in GDP is due to a change in aggregate output.
Year 1
Year 2
Quantity of Apples
Price of Apple
Nominal GDP
Real GDP 50 60
2) For example: $1 $2
a) Suppose in Year 1, 50 apples are sold for $1 apiece.
$50
$120
b) Suppose in Year 2, 60 apples are sold for $2 apiece.
c) What is the nominal GDP for Year 1 and for Year 2?

41. Nominal vs. Real GDP
Nominal GDP is the current dollar value for one year’s GDP. Real GDP, however, is much more useful because it is corrected for inflation.
1) Real GDP tells us how much a change in GDP is due to a change in aggregate output.
Year 1
Year 2
Quantity of Apples
Price of Apple
Nominal GDP
Real GDP 50 60
2) For example: $1 $2
a) Suppose in Year 1, 50 apples are sold for $1 apiece.
$50
$120
b) Suppose in Year 2, 60 apples are sold for $2 apiece.
Calculate
c) What is the nominal GDP for Year 1 and for Year 2?
Allow students time to calculate the totals themselves and write them on their note sheets.
d) What is the GDP for each year if we only use the price from Year 1?

42. Nominal vs. Real GDP
Nominal GDP is the current dollar value for one year’s GDP. Real GDP, however, is much more useful because it is corrected for inflation.
1) Real GDP tells us how much a change in GDP is due to a change in aggregate output.
Year 1
Year 2
Quantity of Apples
Price of Apple
Nominal GDP
Real GDP 50 60
2) For example: $1 $2
a) Suppose in Year 1, 50 apples are sold for $1 apiece.
$50
$120
b) Suppose in Year 2, 60 apples are sold for $2 apiece.
$50
$60
c) What is the nominal GDP for Year 1 and for Year 2?
Explain again that real GDP gives us a more accurate measure of GDP because it does not take into account changes in price. The $60 is a much more representative number for Year 2 production when compared to $120.
d) What is the GDP for each year if we only use the price from Year 1?

43. Nominal vs. Real GDP
Nominal GDP is the current dollar value for one year’s GDP. Real GDP, however, is much more useful because it is corrected for inflation.
1) Real GDP tells us how much a change in GDP is due to a change in aggregate output.
Nominal GDP
Real GDP
2) For example:
a) Suppose in Year 1, 50 apples are sold for $1 apiece.
b) Suppose in Year 2, 60 apples are sold for $2 apiece.
c) What is the nominal GDP for Year 1 and for Year 2?
Allow students time to write down an answer to this question. Possible answers may include “nominal GDP grows at a faster rate than real GDP”; “nominal GDP has a steady upward trend whereas real GDP seems to decrease sometimes”; “both have grown in the long run”; “nominal and real GDP are the same in the year that we use the prices for calculating the data (2005)”
d) What is the GDP for each year if we only use the price from Year 1?
3) What do you notice about this graph of nominal and real GDP?

44. Real GDP per Capita
Real GDP per capita is the key statistic used for tracking the health and growth of an economy.

45. Real GDP per Capita
Real GDP per capita is the key statistic used for tracking the health and growth of an economy.
1) Divide real GDP by the population of a country to find real GDP per capita.
Real GDP
Population
Real GDP per capita =
See Sample

46. Real GDP per Capita
Real GDP per capita is the key statistic used for tracking the health and growth of an economy.
1) Divide real GDP by the population of a country to find real GDP per capita.
Real GDP
Population
Real GDP per capita =
$15,681,500,000,000
315,439,603
RGDPC of U.S. =
$49,713
RGDPC of U.S. =
This data comes from 2012 using 2012 dollars.

47. Real GDP per Capita
Real GDP per capita is the key statistic used for tracking the health and growth of an economy.
1) Divide real GDP by the population of a country to find real GDP per capita.
2) U.S. real GDP per capita has steadily grown over time.

48. Real GDP per Capita
Real GDP per capita is the key statistic used for tracking the health and growth of an economy.
1) Divide real GDP by the population of a country to find real GDP per capita.
2) U.S. real GDP per capita has steadily grown over time.
3) The U.S. has almost three times as much purchasing power per person as it had in 1960.
Here is a good time to ask students why they think an increasing real GDP per capita helps increase standards of living. Ask for examples of how we lead more comfortable lives than we did in the 1960s or even the 1990s.

49. Real GDP per Capita
Real GDP per capita is the key statistic used for tracking the health and growth of an economy.
1) Divide real GDP by the population of a country to find real GDP per capita.
2) U.S. real GDP per capita has steadily grown over time.
3) The U.S. has almost three times as much purchasing power per person as it had in 1960.
This map is an extremely simplified version of how the world actually looks. Note that there are places in Asia and Africa with high incomes while there are places in Latin America with both high and very low incomes. The map is designed to give students an understanding of how GDP per capita is generally distributed around the globe.
4) Other countries, however, continue to have low real GDP per capita rates.

50. Calculating GDP DIRECTIONS
There are different stations set up around the room. Each station contains a set of cards for calculating GDP. There are cards for the production approach, the expenditure approach, and the income approach. Begin at one station and make sure the cards are shuffled. Place the cards in the four appropriate piles face down. Draw one card from each pile, and calculate the GDP using the data on those four cards. An example of how to calculate each of the different methods is provided under each heading below.
PRODUCTION APPROACH
In order to find GDP using the production approach, add together all of the value added amounts.
EXPENDITURE APPROACH
In order to find GDP using the expenditure approach, add together the values of consumption, investment, government spending, and net exports. To find the value of net exports, subtract imports from exports.
INCOME APPROACH
In order to find GDP using the income approach, add together the values of wages, interest, rent, and profit.