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Economic PerformanceEconomic PerformanceSECTION 1: Gross Domestic Product

SECTION 2: Business Cycles

SECTION 3: Economic Growth

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Objectives:Objectives:How do economists calculate gross domestic

product?What are some of the limitations of gross

domestic product?What other statistics do economists use to

measure the economy?

Gross Domestic ProductGross Domestic ProductSECTION 1

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Output expenditure model:Output expenditure model:used to calculate gross domestic product sum of the output produced by personal

consumption expenditures (C), gross investment (I), government purchases of goods and services (G), and net export of goods and services (X-M)

Gross Domestic ProductGross Domestic ProductSECTION 1

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Limitations of gross domestic Limitations of gross domestic product:product: initial figures often inaccuratedoes not include nonmarket activities or the

underground economydoes not accurately measure a nation’s well-

being

Gross Domestic ProductGross Domestic ProductSECTION 1

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Other statistics economists use to Other statistics economists use to measure the economy:measure the economy:gross national productnet national productnational incomepersonal incomedisposable personal income

Gross Domestic ProductGross Domestic ProductSECTION 1

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Objectives:Objectives:What are the four phases of the business

cycle?What factors influence the business cycle?What are the three leading indicators used to

determine the current phase of the business cycle and predict where the economy is headed?

Business CyclesBusiness CyclesSECTION 2

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The four phases of the business cycle:The four phases of the business cycle:expansionpeakcontraction or recession trough

Business CyclesBusiness CyclesSECTION 2

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Factors that influence the business Factors that influence the business cycle:cycle: levels of business investmentavailability of money and creditpublic expectations about the futurechanges in the world’s economy or political

climate

Business CyclesBusiness CyclesSECTION 2

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Predicting the business cycle:Predicting the business cycle: leading indicators—anticipate the direction

of the economy coincident indicators—tell economists that

the economy has shifted lagging indicators—help economists predict

the duration of economic upturns and slumps

Business CyclesBusiness CyclesSECTION 2

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Objectives:Objectives:Why is economic growth important?What are the requirements of economic

growth?What is the relationship between economic

growth and productivity?

Economic GrowthEconomic GrowthSECTION 3

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Importance of economic growth:Importance of economic growth: to maintain a high standard of living to compete effectively in the global

marketplace to provide the resources to deal with

domestic problems

Economic GrowthEconomic GrowthSECTION 3

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Requirements of economic growth:Requirements of economic growth:Increasingnatural resourceshuman resourcescapital resourcesentrepreneurshipproductivity levels

Economic GrowthEconomic GrowthSECTION 3

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Relationship between economic Relationship between economic growth and productivity:growth and productivity:Economic growth requires either more

inputs or an increase in the productivity of these inputs.

Economic GrowthEconomic GrowthSECTION 3

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1.1. Explain the difference between nominal GDP and real GDP. Why is real GDP a better measure to use when examining changes in GDP over time?

2.2. Explain the difference between personal income and disposable income.

3.3. Identify and explain the four phases of the business cycle.

4.4. How are economic growth and productivity related?

5.5. Why is real GDP per capita used to measure economic growth?

Wrap-UpWrap-Up

CHAPTER 10