gross domestic product
DESCRIPTION
Gross Domestic Product. EQ: How do we measure a nation’s wealth?. Intro Video. Definition of GDP. Gross Domestic Product “ GDP is the total market value of all final goods and services produced within a country in a given period of time .” Activity: - PowerPoint PPT PresentationTRANSCRIPT
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EQ: How do we measure a nation’s EQ: How do we measure a nation’s wealth?wealth?
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Intro Video
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Gross Domestic Product
“GDP is the total market value of all final goods and services produced within a country in a given period of time.”
Activity: Breakdown the following parts of the definition.
What does each mean? total market value Of all final goods and services within a country in a given period of time
Definition of GDP
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With a partner, what is included in GDP?
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What is NOT included in GDP?
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GDP is the sum of the following:
Consumption (C) Investment (I) Government Purchases (G) Net Exports (NX)
GDP = C + I + G + NX Why does GDP = Y? Think back, way back….
The components of GDP
Y =
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Remember this?
–Every transaction has a buyer and a seller.
–Every dollar of spending by some buyer is a dollar of income for some seller.
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Consumption (C):
The spending by households on goods and services, with the exception of purchases of new housing.
Investment (I): The spending on capital equipment, inventories, and
structures, including new housing. Government Purchases (G):
The spending on goods and services by local, state, and federal governments.
Does not include transfer payments because they are not made in exchange for currently produced goods or services.
Net Exports (NX): Exports minus imports.
Components of GDP
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Come up with 5 scenarios that increase or
decrease the GDP C, I, G, NX, and one that doesn’t count in GDP
5 volunteers Each volunteer holds their sign up if it
increases their component of GDP or down if it decreases.
GDP Scenarios
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What country has the absolute adv in
computers? Calculators? What country has the comparative adv in
computers? Why? Calculators? Why? For terms of trade, should the U.S. accept 180
calculators for 1 computer?
Review
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What is the percentage
breakdowns for the U.S. (yes, this means
math)?
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What does this say about our economy?
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Nominal GDP values the production of goods
and services at current prices. Real GDP values the production of goods and
services at constant prices.
Real vs Nominal GDP
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Year # of hot
dogs sold
Price # of hamburgers sold
Price NominalGDP
2005 100 $1 50 $2
2006 150 $2 100 $3
2007 200 $3 150 $4
Nominal GDP
What is NOMINAL GDP for each
year?
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REAL GDP
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REAL GDP?
Year # of hot dogs sold
Price # of hamburgers sold
Price Real GDP
2005 100 $1 50 $2
2006 150 $2 100 $3
2007 200 $3 150 $4
What is REAL GDP for each year using
2005 base year?
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GDP Deflator
G D P d efla to r =N o m in a l G D P
R eal G D P 1 0 0
What is the GDP deflator for 2005, 2006, and 2007
using our previous example?
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GDP Deflator (cont).
R eal G D PN o m in a l G D P
G D P d efla to r2 0 X X2 0 X X
2 0 X X
1 0 0
Using the GDP Deflator for 2007, show the calculations to find real GDP. Did it match your original calculation for 2007 GDP?
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Year P of
milkQ of milk
P of honey
Q of honey
Nominal GDP
RealGDP
Deflator
2005 (base)
$1 100 $2 50
2006 $1 200 $2 100
2007 $2 200 $4 100
POP Quiz
• Also, compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2006 and 2007 from the preceding year.
• Did economic well-being rise more in 2006 or 2007? Explain?
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GDP is the best single measure of the
economic well-being of a society. GDP per person tells us the income and
expenditure of the average person in the economy.
Higher GDP per person indicates a higher standard of living.
GDP is not a perfect measure of the happiness or quality of life, however.
Is GDP a good measure of economic
well-being?
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Some things that contribute to well-being are
not included in GDP. The value of leisure. The value of a clean environment. The value of almost all activity that takes place
outside of markets, such as the value of the time parents spend with their children and the value of volunteer work.
What does GDP not tell us?
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Some perspective…
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Summary
Guided Practice P. 526 #5