1. GROSS DOMESTIC PRODUCT & GROWTH
CHAPTER 12

2. Gross Domestic Product
Chapter 12, Section 1

3. Gross Domestic Product: The market value of all final goods and services produced in a country in a year.
Nominal GDP is measured in current prices.
Real GDP is measured in constant/unchanging prices

4. GDP can be calculated by totaling the money spent on:
Consumption (C): Spending by households on goods and services. Includes spending on things such as cars, food, and visits to the dentist. Makes up two-thirds of GDP spending.
Investment (I): Spending by businesses on new materials; machinery, factories, equipment, tools, and construction of new buildings.
Government (G): Spending by all levels of government on goods and services. Includes spending on the military, schools, and highways.
Net Exports (X - M): Total Exports minus Total Imports ; Spending by people abroad on U.S. goods and services (exports, or X) minus spending by people in the U.S. on foreign goods and services (imports, or M).
GDP = C + I + G + ( X - M )

5. Limitations of GDP GDP does not take into account:
Nonmarket Activities (mowing your neighbor’s lawn for $20)
Underground Economy (illegal goods/services)
Negative Externalities (cost of reducing pollution)
Quality of Life (people’s happiness)

6. Business Cycles
Chapter 12, Section 2

7. Phases of Business Cycles
Expansion: business prosperity leads to plentiful jobs and low unemployment
Peak: height of economic expansion; when GDP stops rising
Contraction: marked by falling output and rising unemployment
Trough: lowest point in economic contraction; when GDP stops falling

8. The Business Cycle

9. Predicting the Business Cycle
Three indicators economists use to predict the business cycle are:
the stock market
interest rates
manufacturers’ orders of capital goods.

10. Economic growth
Chapter 12, Section 3

11. The basic measure of a nation's economic growth rate is the percentage change of real GDP over a given period of time. The best measure of a nation's standard of living is real GDP per capita. That divides the nation's real GDP by the number of people it has (per capita means per person). Real GDP per capita lets economists compare economies for different time periods and different nations.

12. GDP in the U. S. $17. 95 trillion GDP in Switzerland $482
GDP in the U.S. $17.95 trillion GDP in Switzerland $482.3 billion GDP per capita in the U.S. $56,100 GDP per capita in Switzerland $58,600

13. Capital deepening is the process of increasing the amount of capital per worker, is an important source of growth in modern economies. Physical and human capital can lead to economic growth. An economy increases its capital through saving and investment. Besides capital deepening, the other key source of economic growth is technological progress.

14. What keeps the business cycle going?
Business Investment: As businesses spend more, they create more output and jobs; when they stop spending, output falls and jobs are lost. Interest Rates: Low interest rates cause more spending by businesses; high interest rates causes businesses to stop spending. Consumer Expectations: individuals who expect to have a job are more willing to spend and invest in businesses; if consumers fear losing their job, they are less likely to spend, which causes output to fall

15. Chapter 12 Assessment p. 326-327 Answer 1-6 (vocabulary)
Answer 8-11 using complete sentences. (Don’t write the questions)
Choose ONE of the THREE critical thinking questions (12-14) and answer using complete sentences.