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ECONOMICS STUDY GUIDE, CHAPTER TWELVE:
GROSS DOMESTIC PRODUCT AND GROWTH
GEORGIA PERFORMANCE STANDARDS (your objectives
for this chapter):
SSEMA1 Illustrate the means by which economic activity is measured.
a. Explain that overall levels of income, employment, and prices are determined by the spending and production decisions of
households, businesses, government, and net exports.
b. Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation, stagflation, and
aggregate supply and aggregate demand.
c. Explain how economic growth, inflation, and unemployment are calculated.
e. Define the stages of the business cycle, include peak, contraction, trough, recovery, expansion as well as recession and depression.
KEY TERMS
aggregate demand the amount of goods and services in the
economy that will be purchased at all possible price levels (p. 307)
aggregate supply the total amount of goods and services in the
economy available at all possible price levels (p. 307)
capital deepening process of increasing the amount of capital per
worker (p. 320)
contraction period of economic decline marked by falling real GDP
(p. 310)
depreciation the loss of the value of capital equipment that results
from normal wear and tear (pp. 305, 520), or, a decrease in the value
of a currency (p. 459)
depression a recession that is especially long and severe (p. 311)
durable goods goods that last for a relatively long time, such as
refrigerators, cars, and DVD players (p. 302)
economic growth steady, long-term increase in real GDP (p. 310)
expansion a period of economic growth as measured by a rise in
real GDP (p. 310)
gross national product (GNP) the annual income earned by
U.S.-owned firms and U.S. residents (p. 305)
intermediate goods goods used in the production of final goods
(p. 301)
leading indicators key economic variables that economists use to
predict a new phase of the business cycle (p. 314)
national income accounting a system that collects
macroeconomic statistics on production, income, investment, and
savings (p. 301)
nominal GDP gross domestic product measured in current prices (p
304)
nondurable goods goods that last a short period of time, such as
food, light bulbs, and sneakers (p. 302)
peak the height of an economic expansion, when real GDP stops
rising (p. 310)
price level the average of all prices in the economy (p. 307)
real GDP gross domestic product expressed in constant, or
unchanging, prices (p. 304)
real GDP per capita real gross domestic product divided by the
total population (p. 319)
recession a prolonged economic contraction (p. 311)
saving income not used for consumption (p. 320)
savings rate the proportion of disposable income that is saved (p.
320)
stagflation a decline in real GDP combined with a rise in the price
level (p. 311)
technological progress an increase in efficiency gained by
producing more output without using more inputs (p. 322)
trough the lowest point in an economic contraction, when real gross
domestic product stops falling (p. 311)
KEY IDEAS AND CONCEPTS
•
Gross Domestic Product (GDP), and GDP, GNP, NNP, NI, PI, and DPI
o Four Limitations of GDP:
1. ______________________ 2. _______________________ 3. ______________________ 4. _______________________
o Define the following:
o GNP _____________________________________________________________________________________
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o
NNP _____________________________________________________________________________________
o
NI _____________________________________________________________________________________
o
PI _____________________________________________________________________________________
o
DPI _____________________________________________________________________________________
Aggregate Supply and Demand
Business Cycles
o Four Variables that Affect the Business Cycle:
1. ______________________ 2. _______________________ 3. ______________________ 4. _______________________
o Business Cycle Forecasting and Leading Indicators
o Business Cycles in U.S. History: Depressions, Recessions, and Keynesian Economic Theory
Measuring Economic Growth:
o Per Capita GDP
o GDP Growth, Education, Life Expectancy, Unemployment and Consumer Prices
Capital Deepening: the most important growth source in many economies
Saving and Investing
Population Growth, Government and Trade
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Technological Progress: Know the importance of Solow, Denison, and Measuring Technological Progress
o Five Causes of Technological Progress:
1. __________________ 2. __________________ 3. __________________
4. ___________________ 5. ___________________
Compare and Contrast
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Expenditure & Income Approaches to GDP
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Nominal & Real GDP
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Depressions & Recessions
SAMPLE ESSAY QUESTIONS
1.
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3.
4.
Explain why final goods and services are included in the calculation of GDP and intermediate goods are not.
Explain the concept of business cycles, and describe what happens during the four business cycle phases.
Explain the relationship between consumer expectations and economic performance.
Describe the five causes of technological progress, and give examples of how these increase efficiency in a macroeconomy.
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