Download 12EPP Chapter 12

Chapter Introduction
Section 1: Measuring the
Nation’s Output
and Income
Section 2: Population and
Economic Growth
Section 3: Poverty and the
Distribution of
Income
Visual Summary
Have you ever thought about what
it means when someone is
described as “successful”? Is the
person wealthy, happy, or well
known? Work with a partner and
develop a list of the qualities or
characteristics for your definition of
successful. Share your list with the
class and listen carefully to what
the other students think. Is there a
consensus among your
classmates? Read Chapter 12
to learn more about how
economists assess the success
of a nation’s economy by
measuring its growth and
performance.
Economics provides
strategies, theories, and
analytical tools to deal with
everyday problems.
Section Preview
In this section, you will learn how we measure the
output and income of a nation.
Content Vocabulary
• macroeconomics
• base year
• gross domestic
product (GDP)
• real GDP
• intermediate products
• secondhand sales
• nonmarket
transactions
• underground
economy
• current GDP
• GDP per capita
• gross national product
(GNP)
• net national product (NNP)
• national income (NI)
Content Vocabulary (cont.)
• personal income (PI)
• family
• disposable personal
income (DPI)
• output-expenditure model
• household
• net exports of goods and
services
• unrelated individual
Academic Vocabulary
• excluded
• components
Is it really possible for a factory to
keep track of its total output when it
produces a variety of product lines?
A. Yes
A
0%
0%
C
C. Not sure
A. A
B. B
C.0%C
B
B. No
Measuring the Nation’s Output
and Income
• Macroeconomics deals with the economy
as a whole in determining a nation’s
growth rate.
• GDP is one of the most important macro
measures.
GDP—The Measure of National Output
GDP measures national
output.
GDP—The Measure of National Output
(cont.)
• Gross domestic product (GDP)—
measures final output each year; is
estimated every three months and revised
after that.
Estimating Total Annual Output
GDP—The Measure of National Output
(cont.)
• Items excluded from GDP
– Intermediate products
– Secondhand sales
– Nonmarket transactions
– Underground economy
Estimating Total Annual Output
GDP—The Measure of National Output
(cont.)
• GDP must be adjusted for inflation.
• Constant prices in a base year are tracked
for this purpose.
– Real GDP
– Current GDP
Current GDP and Real GDP
GDP—The Measure of National Output
(cont.)
• Economists calculate GDP per capita to
determine how the output of one country
compares to another.
Profiles in Economics:
John Kenneth Galbraith
GDP—The Measure of National Output
(cont.)
• GDP has limitations.
– GDP tells us nothing about composition
of output.
– GDP tells little about the impact of
production on quality of life.
– Some GDP is produced to control
activities with little utility.
GDP—The Measure of National Output
(cont.)
• GDP is a measure of voluntary
transactions and therefore an indicator of
our overall economic health.
The Global Economy & YOU
Why is GDP the single most important
economic statistic compiled?
A. GDP changes can influence
national elections.
B. Measures economic
health overall
C. Illustrates production’s
impact on quality of life
D. Indicates conditions of
world economy
A. A
B. B
0% C.
0% C 0%
D. D
A
B
C
0%
D
GNP—The Measure of National Income
National income can be
measured in a number of
different ways.
GNP—The Measure of National Income
(cont.)
• GDP has two sides.
– Represents output
– Represents equal amount of income
GNP—The Measure of National Income
(cont.)
• Measures of national income
– Gross national product (GNP) focuses
on total income rather than output.
– Net national product (NNP)
– National income (NI)
– Personal income (PI)
– Disposable personal income (DPI)
Which measure of income shows the
actual amount of money consumers
are able to spend?
A. Personal income
B. National income
C. Disposable personal
income
0%
A
A. A
B. B
C.0%C
B
0%
C
Economic Sectors and Circular Flows
The production of output
generates income which flows
through different sectors of
the economy.
Economic Sectors and Circular Flows
(cont.)
• Income generated by production flows to
businesses, government, and consumer
sectors.
Circular Flow of Economic Activity
Economic Sectors and Circular Flows
(cont.)
• The largest sector in the economy is the
household or consumer.
– Unrelated individual
– Family
Economic Sectors and Circular Flows
(cont.)
• Business or investment sector
– Proprietorships, partnerships, and
corporations
Economic Sectors and Circular Flows
(cont.)
• Government or public sector
• Foreign sector
Which of the following sectors does
not have a specific source of
income?
A. Consumers
B. Government
C. Foreign
D. Business
0%
A
A.
B.
C.
0%
D.
B
A
B
C
0%
D
C
0%
D
The Output—Expenditure Model
The output-expenditure model
is used to explain aggregate
economic activity.
The Output—Expenditure Model (cont.)
• The circular flow can be represented by
the output-expenditure model.
– GDP = C + I + G + (X – M)
The Output—Expenditure Model (cont.)
• Consumers spend income on goods and
services used by households.
• Income that is not spent appears as
personal saving and is borrowed by the
business and government sectors.
The Output—Expenditure Model (cont.)
• Investment sector spends income on labor,
factories, equipment, inventories, and
other investment goods.
• Government sector spends income on
national defense, income security, roads, etc.
• Foreign sector buys U.S. goods that make up
our GDP.
• Foreign sector purchases are called
net exports of goods and services.
What effect do you think the healthcare industry has on GDP?
A. Positive effect
B. Negative effect
C. Balances out
0%
A
A. A
B. B
C.0%C
B
0%
C
Section Preview
We are interested in population because it makes
up the economy’s largest sector, the consumer
sector, and affects the economic performance of
a nation.
Content Vocabulary
• census
• infrastructure
• demographers
• urban
population
• baby boom
• fertility rate
• population
pyramid
• life expectancy
• rural
population
• center of
population
• dependency
ratio
Academic Vocabulary
• residence
• projected
• net immigration
How how often does the
United States conduct a census?
A. every 5 years
B. every 10 years
A. A
B. B
0%
A
0%
B
Population and Economic Growth
• The U.S. Constitution requires the
government to take a census that includes
place of residence.
• Official census
– Taken every 10 years
– Used to apportion number of
representative that each state elects to
Congress
Population in the United States
The country’s population has
shifted from a fast-growing,
mostly rural population to a
slower-growing, mostly
urban one.
Population in the United States (cont.)
• Congress permanently established the
U.S. Census Bureau in 1902.
• Census data are presented in a number
of ways:
– Urban population
– Rural population
– Household trends
Population in the United States (cont.)
– Regional changes
• Population shift is indicated by the center of
population.
– GDP per capita and GNP per capita for
comparisons with other countries
Center of Population, 1790–2000
Population in the United States (cont.)
• If population grows faster than its output, a
country could end up with more mouths
than it can feed.
• If population grows too slowly, there may
not be enough workers to sustain
economic growth with increased demand
on resources.
• Modest shifts in the population can cause
major infrastructure problems in the
future.
What is the most significant impact
that population changes have
brought about in your area?
A. Housing prices have
increased/decreased.
B. Traffic congestion has
increased/decreased.
C. Recreation areas
have been lost/gained.
D. Cost of living has
increased/decreased.
0%
A
A.
B.
C.
0%
D.
B
A
B
C
0%
D
C
0%
D
Projected Population Trends
Fertility, life expectancy, and
net immigration influence
population trends.
Projected Population Trends (cont.)
• Political, community, and business leaders
are all interested in population trends.
– Age and gender
• Baby boom
• Population pyramid
• Dependency ratio
Projected Distribution of the Population
by Age and Gender, 2015
Projected Population Trends (cont.)
– Race and ethnicity
– Population growth as determined by
demographers
• Changes in fertility rates
• Life expectancy
• Immigration and net immigration
Projected Change in U.S. Population
by Race and Ethnic Origin, 2000–2050
Projected Population Trends (cont.)
• Demographics examined here point to a
population that is likely to grow more
slowly in the future.
• Increases in productivity can offset the
negative effects of a declining population
growth.
• A larger concern is age composition—as
the population matures, there is a greater
demand for health-care related products
and services along with retirement funds.
What is the life expectancy at
birth today?
A. 82.1 years
B. 77.7 years
C. 68.4 years
D. 79 years
0%
A
A.
B.
C.
0%
D.
B
A
B
C
0%
D
C
0%
D
Section Preview
In this section, you will learn about the factors that
contribute to income inequality and the programs
that have been implemented to reduce poverty.
Content Vocabulary
• poverty
threshold
• poverty
guidelines
• Lorenz curve
• welfare
• enterprise zone
• food stamps
• workfare
• Medicaid
• negative income
tax
• Earned Income
Tax Credit
(EITC)
Academic Vocabulary
• impact
• uniform
Are you familiar with the term
“working poor”?
A. Yes
B. No
A. A
B. B
0%
A
0%
B
Poverty
A portion of the U.S.
population lives in poverty,
and the gap in the distribution
of income is widening
every year.
Poverty (cont.)
• Individuals classified as living in poverty
have incomes that fall below the poverty
threshold.
• Simplified poverty thresholds appear as
poverty guidelines and are used to
determine eligibility for federal programs.
Poverty Guidelines
Poverty (cont.)
• Economists are interested in how income
is distributed among households.
• Lorenz curve—shows how the actual
distribution of income varies from an equal
distribution.
The Distribution of Income
In 2009, a household of four with an
annual income under what amount
would be eligible for certain federal
aid programs?
A. $22,050
0%
C
A
C. $33,270
B
A. A
B. B
C
0%C. 0%
B. $29,530
Reasons for Income Inequality
Lack of education and uneven
distribution of wealth are
among the reasons for
poverty.
Reasons for Income Inequality (cont.)
• Reasons for varied income
– Education
– Wealth
– Tax law changes
– Decline of unions
Reasons for Income Inequality (cont.)
– More service jobs
– Monopoly power
– Discrimination
– Changing family structure
Is income inequality specific to the
United States?
A. Yes
B. No
C. Applies only to
industrialized nations
D. Affects all nations
0%
A
A.
B.
C.
0%
D.
B
A
B
C
0%
D
C
0%
D
Antipoverty Programs
Since the 1960s, the
government has experienced
modest success with a
number of anti-poverty
programs.
Antipoverty Programs (cont.)
• Welfare programs designed to help
the needy
– Income assistance
– General assistance
• Food stamps
• Medicaid
Poverty in the United States:
Total Number and Rate
Antipoverty Programs (cont.)
– Social service programs
– Tax credits
• Earned Income Tax Credit (EITC)
– Enterprise zones
– Workfare programs
– Negative income tax
Antipoverty Programs (cont.)
• Economic growth by itself is not sufficient
to reduce poverty.
What can you do to help yourself stay
out of poverty?
A. Get an education
B. Make wise choices
and investments
C. Work hard
D. All of the above
0%
A
A.
B.
C.
0%
D.
B
A
B
C
0%
D
C
0%
D
National Output and Income Gross domestic
product (GDP) measures the nation’s output, while
gross national product (GNP) measures the nation’s
income.
Population Governments count the population and
project population trends to plan the use of
resources and to prepare infrastructure.
Poverty People are described as living in poverty if
they live below an income level called the poverty
threshold. Poverty has a number of causes, and
governments have established some programs to
reduce it.
John Kenneth
Galbraith (1908–2006)
• advocated public works
funding in The Affluent
Society
• served as economic adviser
to five presidents
macroeconomics
part of economics that deals with the
economy as a whole and uses
aggregate measures of output,
income, prices, and employment
gross domestic product (GDP)
the dollar value of all final goods,
services, and structures produced
within a country’s national borders
during a one-year period
intermediate products
products that are components of
other final products included in GDP
secondhand sales
sales of used goods not included
in GDP
nonmarket transaction
economic activity not taking place in
the market and, therefore, not
included in GDP
underground economy
unreported legal and illegal activities
that do not show up in GDP statistics
base year
year serving as point of comparison
for other years in a price index or
other statistical measure
real GDP
gross domestic product after
adjustments for inflation
current GDP
gross domestic product measured in
current prices, unadjusted for inflation
GDP per capita
gross domestic product on a per
person basis; can be expressed in
current or constant dollars
gross national product (GNP)
total dollar value of all final goods,
services, and structures produced in
one year with labor and property
supplied by a country’s residents,
regardless of where the production
takes place
net national product (NNP)
GNP less depreciation charges for
wear and tear on capital equipment
national income (NI)
net national product less indirect
business taxes
personal income (PI)
total amount of income going to the
consumer sector before individual
income taxes are paid
disposable personal
income (DPI)
personal income less individual
income taxes
household
basic unit of consumer sector
consisting of all persons who occupy
a house, apartment, or separate living
quarters
unrelated individual
person living alone even though that
person may have relatives living
elsewhere
family
two of more persons living together
who are related by blood, marriage,
or adoption
output-expenditure model
macroeconomic model describing
aggregate demand by the consumer,
investment, government, and foreign
sectors
net exports of goods
and services
net expenditures by the foreign
sector; equal to total exports less total
imports
excluded
not counted or included
components
parts of something
census
complete count of population,
including place of residence
urban population
those persons living in incorporated
cities, towns, and villages with 2,500
or more inhabitants
rural population
those persons not living in
urban areas
center of population
point where the country would
balance if it were flat and everyone
weighed the same
infrastructure
the highways, mass transit,
communications, power, water,
sewerage, and other public goods
needed to support a population
baby boom
historically high birthrate years in the
United States from 1946 to 1964
population pyramid
diagram showing the breakdown of
population by age and gender
dependency ratio
number of children and elderly people
in the population for every 100
persons in the 18 to 64 working-age
bracket
demographer
person who studies growth, density,
and other characteristics of the
population
fertility rate
number of births that 1,000 women
are expected to undergo in their
lifetime
life expectancy
average remaining life span in years
for persons who attain a given age
net immigration
net population change after
accounting for those who leave as
well as enter a country
residence
the place where a person lives
projected
calculated as a future outcome
poverty threshold
annual dollar income used to
determine the number of people in
poverty
poverty guidelines
administrative guidelines used to
determine eligibility for certain federal
programs
Lorenz Curve
graph showing how the actual
distribution of income differs from an
equal distribution
welfare
government or private agency
programs that provide general
economic and social assistance to
needy individuals
food stamps
government-issued coupons that can
be exchanged for food
Medicaid
joint federal-state medical insurance
program for low-income people
Earned Income Tax Credit
(EITC)
federal tax credits and cash payments
for low-income workers
enterprise zone
area free of tax laws and other
operating restrictions
workfare
program requiring welfare recipients
to work in exchange for benefits
negative income tax
tax system that would make cash
payments to individuals with incomes
below certain levels
impact
effect
uniform
even or consistent
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