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Chapter 6 Warm-Up
Should the government measure how
productive we are as a society, or how
much money we make individually and
collectively? Why or why not?
Unit 4
Macroeconomics: Measuring
Domestic Output, Etc.
Unit 4 - GDP
I. Assessing the Economy’s Performance:
A. Assesses the health of the economy
B. Tracks the long-term course of economic
activity
C. Guides the government to create policies
Unit 4 - GDP
II. Gross Domestic Product (GDP)
A. The total market value of all final goods
and services (g/s) produced in a given
year; includes g/s produced by citizensupplied or foreign-supplied resources
employed within the country.
B. Must be measured monetarily to facilitate
comparisons.
Unit 4 - GDP
C. Avoiding multiple counting
1. GDP includes only the market value of
final goods and ignores intermediate
goods altogether.
2. Intermediate goods – G/S that are
purchased for resale or further
processing
3. Final goods – G/S that are purchased for
final use by the consumer.
Unit 4 - GDP
D. GDP excludes non-production transactions
1. Financial Transactions:
a. Public transfer payments – Money
from the government to citizens
b. Private transfer payments – Money
from citizens to other citizens
c. Stock market transactions
Unit 4 - GDP
2. Secondhand Sales – A product that has
already been sold (and counted in GDP)
previously. Ignored because it
represents no current production; the
focus is really on jobs.
What are some secondhand sales?
Unit 4 - GDP
III. Measuring GDP (two ways of measuring
GDP end up with the same results):
Income approach – we’re skipping this one.
Expenditures approach – the sum of all money
spent to purchase G/S (output approach). This is
our focus and easier to understand.
Two Measurements of GDP
Unit 4 - GDP
III. Measuring GDP
A. The Expenditures Approach – Add up all the
spending on final goods and services for the
year.
1. Personal Consumption (C) – all the money
spent on
a. Durable consumer goods;
b. Nondurable consumer goods; and
c. Expenditures for services.
Unit 4 - GDP
2. Gross Private Domestic Investment (Ig):
a. Machinery, equipment, and tools
b. Construction (including personal homes)
c. Inventory changes
Unit 4 - GDP
3. Government Purchases (G) – Spending on
all final goods and direct purchases of
resources.
a. Expenditures for g/s that government
consumes in providing public services;
b. Expenditures for social capital such as
schools and highways.
Unit 4 - GDP
4. Net Exports (Xn) – The value of exports
minus the value of imports.
Net exports (Xn) = exports (X) – imports (M)
Why does GDP make this calculation instead of
just counting all exports?
Based upon
the chart, how
bad does the
U.S. negative
Xn hurt the
economy?
The real
explanation is
a lot worse
than you
think… (Ch.9)
Unit 4 - GDP
The Expenditures Approach: GDP = C + Ig + G + Xn
Why does the U.S.
have the largest
economy (by GDP)
even though we are
not the most
populous nation?
According to the
video, how has this
list changed? Why?
Unit 4 - GDP
IV. Problems with GDP:
A. Non-market Activities – Services that do
not take place in any measured market;
normally do not make money
(homemakers, people who work on their
own homes, etc.)
B. Leisure – Time not spent at work is “good”
for people, but may not be measured in
financial terms.
Unit 4 - GDP
C. Improved quality – GDP measures
quantity of “stuff” produced, not the
improvements made in similar products
over time
C. Underground economy – The illegal
activity in the country. Examples?
Unit 4 - GDP
E. The Environment – Consequences of
industrialization (toxic waste, pollution,
traffic, noise, etc.). What are the social
and health consequences?
Asthma
Slurry ponds and stripped hillsides from
the coal video
Beijing’s terrible air quality, Japan’s
nuclear reactor leak…
Unit 4 - GDP
F. Consumption & Distribution of Output –
Are these fair within society?
Who gets the most stuff?
Why are there so many homeless
people?
Do kids growing up in inner cities have
the same opportunity for success as you
at WHS?
Unit 4 - GDP
G. Growth does NOT necessarily mean health –
In other words, just because our economy is
making “stuff” DOES NOT mean that it
contributes to a good standard of living.
How is the cost of crime factored into GDP?
Should GDP assign the same weight to different products
(video games, assault rifles, encyclopedias, medicine for
diabetes)? In other words, measure them only by the
amount of money they bring into the economy?
What about the cost of war?