Assume you are Dr. I.O. Many Bucks(Government’s Doc)

Your most important patient comes in,

Mr. E. Conomy, for a checkup.

Okay, maybe this would be better.

What economic “vital signs” will you check?

One measure of good “health” is if the economy is growing.

The government statistic (vital sign) that best measures economic growth is…..

GDP----Gross Domestic Product

Gross Domestic Product

• The total dollar value of final goods and services produced in a country in one year

• America’s GDP is …..

• Really big

• About 14 trillion dollars

• Wow!

• $14,000,000,000,000

• List of countries by GDP (nominal) - Wikipedia, the free encyclopedia

• GDP - per capita (PPP) - Country Comparison - TOP 100

• http://strangemaps.wordpress.com/2007/06/10/131-us-states-renamed-for-countries-with-similar-gdps

Expenditure Approachwho buys the economic pie?

1. Consumers (almost 70%)

a. Durable goods

b. Nondurable goods

c. Services (this is a biggie)

d. there is no d

II. Investment Spending (15%)

a. Machines

b. Factories

c. Houses

d. Inventory changes

III. Government all levels (about 20%)

a. Defense spending

b. Road construction

c. Other government projects (add C after B on your sheet)

IV. Foreign Nations

a. We want to count exports

b. We don’t want to count imports

c. Net Exports (Exports –Imports) Xn

• (-5%)• So, the expenditure

approach is..• C + Ig + G + Xn = GDP

Cousins of GDP (stop here)

1. GNP2. NDP3. GDP – depreciation = NDP4. What’s depreciation (aka. consumption of fixed

capital)?• Repairing, maintaining, and replacing capital5. Gross investment (Ig) expenditures include

depreciation expenses6. Net investment spending does not7. Ig – In = depreciation

SO WHAT DOES ALL THIS MEAN TO YOU PERSONALLY?

• NOT MUCH

8. National Income

• All income earned by Americans wherever they may be

9. NDP – net foreign factor income

- indirect business taxes

= National Income (NI)

Personal Income

10. Personal Income is all income received in the home whether earned or unearned

11. Not all income is earned nor is all income earned received by households

12. National Income – soc sec

-- corp income tax

-- undistributed corp profits

+ transfer payments

= Personal Income

13. Disposable Income

• This one is easy

• Personal income minus personal income tax = disposable income (DI)

IMPORTANT POINT TO REMEMBER

• THIS IS IN YOUR BOOK!• WAGES, INTEREST, RENT, AND PROFITS

ARE ALSO INCLUDED IN GDP CALCULATIONS BUT NOT IN THE EXPENDITURE APPROACH (C+Ig+G+Xn)

• THEY ARE COUNTED IN THE INCOME APPROACH

• If you are calculating GDP, ignore types of income and just focus on expenditures