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Economics: Capital and GDP
Income
Expenses
Capital
Human
Capital
Literacy Rate
Life
Expectancy
Physical
Capital
Natural
Resources
Entrepreneur
Gross
Domestic
Gross
Domestic
Product
Per Capita
Per Capita
Gross
Domestic
Product
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The money that comes in. Your pay is your income. If he pays you rent, or if she
pays back money she borrowed, that counts as income.
The money that you pay out. You pay rent, you pay for food, you pay back the
money he let you borrow; you buy a hat; you go to the movies.
A pile of money. An accumulation of wealth. A separate, huge amount of money
that is not part of your regular income or expenses. You haven’t spent it—yet! It is
potential. Capital lets you do something big!
Most regular people don’t have a big blob of capital. Banks have capital.
The potential power of workers. The level of health, education, training, and skills
of the workers in a country. If workers are healthy and expert, that’s a high level
of human capital. If workers are hungry and sick, and have no education, that’s a
low level of human capital.
The percentage of the population that can read at a fourth-grade level. Countries
with a high literacy rate often have successful economies—but not always.
How long the average person lives in a certain country. In Norway, the average
age of death is 83. In Russia the life expectancy is 68.
Equipment for business. Roads, factories, ports, railroads, airports, mines,
buildings, technology. A country with a high level of physical capital is a good
place to do business. A country needs capital (a pile of money) to build physical
capital (a railroad line leading to a seaport).
Gifts from nature. Trees, rivers, coal, oil. Natural resources help a country’s
economy. Humans don’t create natural resources; we figure out ways to use them as
raw materials and energy to make money!
A person who has an idea and starts a business. Entrepreneurs usually start small,
but they need to borrow capital if they want to expand their businesses. Banks
lend capital to entrepreneurs with solid plans.
Total. In economics, gross doesn’t mean icky. The gross amount is the total,
whole, entire amount. Our lemonade stand grossed $7: that’s our total income.
At home, within a country. International problems involve several countries.
Domestic problems are within one country.
The total value of all goods and services produced within one country in one year.
How much a country produces. This is one way to measure the size of a country’s
economy. A successful country has a high GDP.
Per person. From Latin, “for each head.” Twelve apples shared by four people is
three apples per capita, or three apples for each person.
How much a country produces per person. Per capita GDP is how much a country
produces divided by the number of people. This is the best tool to measure a
country’s economy and a fair way to compare the economies of different countries.
Learn to use the per capita GDP to brag: My country’s per capita GDP is higher
than your country’s per capita GDP.
An embargo is when you stop trading with another country. 1 country might put
an embargo on another country to get them to change things politically. For
example, we had a trade embargo with Cuba because we didn’t like their dictator.
Economics: Capital and GDP
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D
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One item is supplied. Figure out the other missing items.
Definition
Examples
Term
equipment for business
entrepreneur
Education, health, skills
expenses
$10,000 to start a new business
How long people live
40% of our population can read
I make $8 an hour.
Here are three fictional countries. Use this information to answer these questions.
Tishban
Calormen
Beruna
Tishban has rivers, forests, and an
The population of Calormen is 200;
Beruna is a tiny country known for
ocean coast. It has a huge
the gross domestic product is
high-tech, entrepreneurial economy.
agricultural plain. It delivers food to
$400,000. The literacy rate is 40%.
The population is 100, and the GDP
the continent on a network of
The life expectancy is 60 years.
is $1 million. Beruna has many
highways. Food processing plants
Calormen is a hot, windy desert; it
factories and an excellent railroad
are located along the coast. The life
does not have an ocean port. There system. The literacy rate is 99%.
expectancy is 70 years. The per
is a small airport, no railroads, and
Four universities and two medical
capita GDP is $5,000. The
one major highway to the capital. In schools conduct research. Beruna
population is 30. Most people work in the industrial zone there are three
has a very small agricultural sector.
small factories.
They get food from Tishban.
agriculture or manufacturing.
Remember: Gross Domestic Product is the total value of all goods and services produced in one country in one year.
Per capita GDP is the GDP divided by the population. It’s the GDP per person.
If you know the population and the per capita GDP, then multiply them to get the GDP.
1. What is the gross domestic product of Tishban?
Per capita GDP _________ x population ______ = G D P _______________
2. What is the per capita GDP of Calormen?
G D P _____________ divided by population _________ = per capita GDP _______________
3. What is the per capita GDP of Beruna?
G D P _____________ divided by population _________ = per capita GDP _______________
4.
5.
6.
7.
8.
Which country has the highest per capita GDP?
What do you predict is the life expectancy in Beruna?
What do you predict is the literacy rate of Tishban?
Which country has the highest literacy rate?
Does high per capita GDP connect to high literacy rate or low? Why?