1. 1 Gross Domestic Product Economics for Today by Irvin Tucker, 6 th edition ©2009 South-Western College Publishing

2. 2 What puzzles will I learn to solve? Why doesn’t economic growth include increases in spending for welfare, Social Security, and unemployment programs? Can one newscaster report that the economy grew, while another reports that for the same year the economy declined, and both be correct? How is the calculation of national output affected by environmental damage?

3. 3 What is national income accounting? The system used to measure the aggregate income and expenditures for a nation

4. 4 Who was Simon Kuznets? He explained the first national accounting system, he is called the father of GDP

5. 5 What is gross domestic product? GDP is the most widely reported measure of a nation’s economic performance

6. 6 What does GDP measure? The market value of all final goods and services produced in a nation during a period of time, usually a year

7. 7 What is an advantage of using GDP? GDP measures value using dollars, rather than a list of the number of goods and services

8. 8 Does GDP measure secondhand transactions? No, Current GDP does not include the sale of a used car or the sale of a home constructed some years ago

9. 9 What are intermediate goods? Goods and services used as inputs for production of final goods

10. 10 Does GDP count intermediate goods? No, to avoid double counting, GDP only measures final goods and services

11. 11 What are final goods? Finished goods and services produced for the ultimate user

12. 12 Does GDP measure nonproductive financial transactions? No, GDP does not count purely private or public financial transactions such as giving gifts, stocks, bonds, or transfer payments

13. 13 What is a transfer payment? A government payment to individuals, not in exchange for goods or services currently produced

14. 14 Does GDP measure the whole economy? Yes, GDP includes markets for products, resources, consumers, workers, and businesses

15. 15 What is a circular flow model? A model that show us how all the pieces of the puzzle fit together

16. 16 Product markets Households Factor markets Businesses Basic Circular Flow Model

17. 17 What is a flow? A rate of change in a quantity during a given time period

18. 18 What is a stock? A quantity measured at one point in time

19. 19 What additional sectors does a complex circular flow model contain? Financial markets Government Foreign markets

20. 20 What leakages are present in the more complex model? Household saving Household taxes paid Income spent on imports

21. 21 What injections are present in the more complex model? Business spending Government spending Foreign spending

22. 22 What point is the economy tending toward? Where the dollar value of leakages equals the dollar value of injections

23. 23 How do we measure GDP? We add all the spending for final goods and services by the four sectors of GDP

24. 24 What are the four sectors of GDP? Consumption Investment Government Foreign (X - M)

25. 25 GDP = C + I + G + (X - M)

26. 26 What is a conclusion? GDP is a quantitative, rather than qualitative, measure of the output of goods and services

27. 27 $13,247 $4,367 $2,897 $2,630 $2,373 $2,231 U.S.Japan Canada U.K.Germany MexicoFrance China $979 $1,269

28. 28 What are shortcomings of GDP? Nonmarket transactions Distribution, kind, & quality of products Neglect of leisure time Underground economy Economic bads

29. 29 What other national accounts measure economic performance? National Income Personal Income Disposable Personal Income Nominal and Real GDP GDP Chain Price Index

30. 30 What is national income? NI is the total earned by resource owners, including wages, rents, interest, and profits

31. 31 What is personal income? PI is the total income received by households that is available for consumption, saving, and payment of personal taxes

32. 32 What is disposable personal income? DI is the amount of income that households have to spend or save after payment of personal taxes

33. 33 What is nominal GDP? The value of all final goods based on the prices existing during the time period of production

34. 34 What is real GDP? The value of all final goods produced during a given time period based on the prices existing in a selected base year

35. 35 What is the chain price index? A measure that compares changes in the prices of all final goods during a given period to the prices of those goods in a base year

36. 36 Real GDP = nominal GDP x 100 GDP chain price index

37. 37 END