1. Today’s Schedule – 10/18 GDP PPT Possible Reading: Psychology of Spending HW: – Rd Ch. 11, Sections 1-3

2. Macroeconomics The study of the behavior and decision making of entire economies Examines trends for the economy as a whole

3. Tracking the U.S. Economy National Income Accounting- A system that collects statistics on production, income, investment and savings

4. GDP Gross Domestic Product (GDP) – The value of all final G & S (sold to consumers) produced within a country’s borders in a given year Includes products produced in the U.S. by a foreign company Ex: A Japanese car company that produces cars in Wisconsin would be included in GDP

5. GDP GDP does not include cars made in Germany by a U.S. company

6. Final vs. Intermediate G & S Final G & S- Products sold in their final form to consumers Intermediate G & S- G & S used to produce a final G &S You buy a used 2002 VW Jetta- would this be included in GDP for this year?

7. Nominal vs. Real GDP GDP tells us how well the economy is performing

8. Nominal GDP Nominal GDP- GDP measured by using the current price – Can be deceptive: GDP rising because cost of good rises, not because we are producing more goods

9. Real GDP Real GDP- GDP measured using a constant price – Economist select one year as the “base” year and use the price of G & S from that year to calculate GDP – Real GDP gives us a better picture of how our economy is performing

10. Limitations of GDP Cannot measure underground activities – “Under the table” wages; Drug sales; Weapon sales; Exotic animal sale Quality of Life – Increase in productivity does not mean increased happiness Monetary Positives – Every monetary transaction is seen as positive- Katrina cleanup- $15b increase

11. GNP Annual income earned by U.S. owned companies and citizens – Both domestically and internationally