1. Kick off 4/13 What do you think about the cartoon on page 343?

2. Economic Performance Chapter 13

3. I. GDP Gross Domestic Product – the value of final goods and services produced within a country in a year A.Computing 1.Government statisticians use sampling techniques 2.Numbers are released quarterly and revised over time B.Exclusions 1.Intermediate products (ex: tires for a new car) 2.Secondhand sales 3.Non-market transactions (ex: work performed within a household) 4.Underground economic activity C.Limitations 1.Does not specify where changes are taking place 2.Does not necessarily indicate quality of life D.Usefulness 1.Most important measure of overall economic health 2.Parts of GDP can analyzed for specific details about the economy

4. II. Other Measurements GNP – (Gross National Product) value of goods and services produced by a country’s residents NNP – (Net National Product) GNP minus depreciation NI – (National Income) NNP minus indirect business taxes PI – (Personal Income) the money available for consumers before personal taxes(NI minus retained corporate earnings, corporate income tax, and social security contributions plus transfer payments) DI – (Disposable personal income) money available after personal income taxes

5. III. Output-Expenditures Model GDP = C+I+G+(X-M) A.Consumer Sector (Private Sector) 1.Largest sector in the US economy 2.Made up of households 3.Income consists of DI (Disposable Personal Income) 4.Represents total value of consumer goods B.Investment Sector (Business Sector) 1.Made of businesses 2.Income consists of depreciation and retained corporate earnings 3.Represents total value of capital goods C.Government Sector (Public Sector) 1.Made up of local, state, and federal government 2.Income comes from various taxes on the consumer and investment sector 3.Represents total value of public goods D.Foreign Sector 1.Includes all producers and consumers outside the US 2.Represented by the difference between iMports and eXports (X-M)

6. IV. Changes in Price Level Inflation causes distortion in statistics like GDP over time A.Price Index – used to account for inflation 1.A base year must be selected and a market basket must be priced 2.Prices for each year are compared to the base year 3.Major indices – compiled by the Bureau of Labor statistics Consumer price index – market basket of 80,000 consumer products Producer price index – market basket of 100,000 commodities B.Real vs. Current GDP 1.Current GDP – not adjusted for inflation 2.Real GDP adjusted by a price index for inflation in reference to a base year Allows economists to determine whether or not more was produced

7. V. Economic Growth Measured in real GDP per capita A.Importance of Growth 1.Needed to maintain standard of living 2.Needed to increase the tax base 3.Helps to reduce poverty and accompanying social problems B.Factors of Production and Growth 1.Abundant resources 2.Capital formation through savings 3.A large and educated workforce 4.A climate that encourages entrepreneurship C.Productivity and Growth – Economic growth occurs when worker become more productive