2.  Gross Domestic Product  The total dollar value of all final goods and services a nation’s industries produce within its borders in one year.

3.  Quantity of goods produced in a year X price of each item = GDP

4.  Dollar values (reported as is) – the way the government reports GDP

5.  GDP adjusted for inflation from a base year.

6.  Final goods and services – sold to ultimate users  Intermediate goods – those used in the production of other goods.  Tire example: may be either final or intermediate depending on who sells it.

7.  Unsold inventories are counted in GDP- dealer is considered the final purchaser.

8.  GDP includes only goods produced in the specified calendar year.

9.  GDP measures only domestic production, things produced in the U.S.  Toyota Tundra made in Texas?

10.  1. Quantity of Goods X Price  2. Only final goods & services  3. Only goods produced during the calendar year.  4. Only includes domestic production.

12.  Add all purchases in the four basic economic groups: › Households › Businesses › Government › foreign buyers

13.  Households account for the greatest portion of the nation’s total purchases: $9,224.5 billion in 2006.  Consumer Services – haircuts, education  Consumer Durable Goods: life expectancy more than one year  Consumer Non-durable Goods: wears out or used up in less than one year.

14.  Trash bags  Car stereo  Suntan lotion  Flip flops  Prom dress  Laundry detergent  Home theater

15.  Gross Private Domestic Investment (GPDI)- business investment  Sum of all business spending on captial investment and unplanned inventories.

16.  In 2006, Government spending accounted for about one-fifth of the GDP.

17.  Consider the amount of goods a nation sells to other countries.  Then subtract the amount that nation buys from other countries.  That gives you the Net Exports.  The U.S. has had a negative trade balance every year since the 1970s. (We buy more from other countries than we sell.)

18.  GDP = C + I + G + NX

20.  Purpose of GDP – tell government officials and economists how productive the economy has been at any given time.  GDP is an estimate and is NOT precise.

21.  Unrecorded Transactions – barter transactions, do-it-yourself activities, black market activities  Counterproductive Items – pollution, environmental damage  Inflation- GDP doesn’t recognize the true dollar value of production. Economists adjust for inflation to a base year = REAL GDP  Changes in population – per capita GDP, wealth per person

22.  Real GDP/total population = per capita real GDP

24.  Negative balance of trade – buy more from foreign countries than you sell.

25.  Positive balance of trade – Sell more to foreign countries than you buy.

26.  Since 1976 the U.S. has run trade deficits.  Trade deficits mean jobs leave the U.S. and go overseas where countries are producing more.  Trade deficits indicate a decline in U.S. manufacturing.  Trade deficits show that other countries are able to produce better or less costly products.

28.  1. Domestic inability to produce some goods.  2. Better quality of some foreign goods.  3. Cheaper foreign materials.  4. Lower foreign wages.  5. Lower foreign capital costs.  6. Foreign subsidies – Gov’t pays producers to help with manufacturing costs.

30.  Try to protect domestic manufacturing and jobs.

31.  Support trade quotas which limit the quantity of goods that can be imported.  Support tariffs which make imports more expensive and domestic products more competitive.  Unintended Consequence: Costs rise for the American consumer causing a reduced demand for products.

32.  Believes free markets will offer the best opportunities.  Consumers are important to productivity.  Say protectionism is similar to mercantilism (how?)  Quotas and tariffs cause shippers and boatmen to lose jobs due to fewer imports.

33.  If foreigners prosper from trade, they are able to purchase American products.  Protectionist laws favors some businesses and industry and hurts others. (redistribution of unemployment)

34. Protectionism  Non-competitive firms win  Limits buyers choices  Raises prices Free Trade  Solid businesses may suffer  Gives buyers more choices  Lowers prices

35.  What is it?  Why is it important?  What must be taken into consideration?