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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 3-3 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. 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. 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. Economics: Capital and GDP Definition N D 3-3 C Term Examples 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 ocean coast. It has a huge agricultural plain. It delivers food to the continent on a network of highways. Food processing plants are located along the coast. The life expectancy is 70 years. The per capita GDP is $5,000. The population is 300. Most people work in agriculture or manufacturing. The population of Calormen is 200; the gross domestic product is $400,000. The literacy rate is 40%. The life expectancy is 60 years. Calormen is a hot, windy desert; it does not have an ocean port. There is a small airport, no railroads, and one major highway to the capitol. In the industrial zone there are three small factories. Beruna is a tiny country known for high-tech, entrepreneurial economy. The population is 100, and the GDP is $1 million. Beruna has many factories and an excellent railroad system. The literacy rate is 99%. Four universities and two medical schools conduct research. Beruna has a very small agricultural sector. 1. 2. 3. 4. 5. 6. 7. 8. What is the gross domestic product of Tishban? What is the per capita GDP of Calormen? What is the per capita GDP of Beruna? 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?