Splash Screen Chapter 13 Economic Performance 2 Chapter Introduction 1 Economics and You A growing...

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Chapter 13Economic

Performance

2

Chapter Introduction 1

Economics and YouA growing economy means an expanding economy, one that continues to provide more people with what they want or need. In Chapter 13, you will learn how the nation’s economic growth is the key to a better future for everyone.

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Chapter Objectives

• Explain how Gross Domestic Product (GDP) is measured.

• Describe the limitations of GDP.

• Understand the importance of GDP.

Section 1: Measuring the Nation’s Output

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Chapter Objectives

• Explain how a price index is constructed.

• Describe three price indices.

• Understand the difference between real and current GDP.

Section 2: GDP and Changes in the Price Level


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– Gross Domestic Product

Key Terms

– national income accounting

– intermediate products

– secondhand sales – nonmarket

transactions – underground

economy – Gross National

Product

Section 1-2

Study Guide (cont.)

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– net national product – national income – personal income – disposable personal

income – household – unrelated individual – family – output-expenditure

model – net exports of goods

and services

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Section 1-3

ObjectivesAfter studying this section, you will be able to:

Applying Economic ConceptsGross Domestic Product Why is the GDP the most important measure of overall economic performance?

Study Guide (cont.)

– Explain how Gross Domestic Product (GDP) is measured

– Describe the limitations of GDP.

– Understand the importance of GDP.

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Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 341 of your textbook.

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Section 1-4


Introduction• The Gross Domestic Product (GDP)–the

dollar amount of all final goods and services produced within a country’s national borders in a year–is the single most important measure of the economy’s overall economic performance.

• When GDP does not do well, neither does the rest of the economy.

• Economists devised national income accounting–a system of statistics and accounts that keeps track of production, consumption, saving, and investment–to track overall economic performance.

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Section 1-5


Introduction (cont.)

• This data becomes part of the National Income and Product Accounts (NIPA) kept by the U.S. Department of Commerce.

• The NIPA is like a statistical road map that tells Americans where they are and how they got there.

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Section 1-6


GDP–The Measure of National Output

• Gross Domestic Product (GDP), a measure of national output is computed by multiplying all final goods and services produced in a 12-month period by their prices.

• Intermediate goods, secondhand sales, and nonmarket transactions are excluded from GDP.

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Section 1-8b

Figure 13.1Estimating Gross Domestic Product

GDP–The Measure of National Output (cont.)

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Section 1-6


GDP–The Measure of National Output (cont.)

• GDP tells nothing about the composition of output or the impact of production on quality of life.

• Despite its limitations, GDP is still the best measure of overall economic health.

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Section 1-Assessment 1

Discussion Question

What does an increase in GDP indicate?

That the country experienced economic growth.

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Section 1-15


GNP–The Measure of National Income

• Gross National Product (GNP) is equal to GDP plus all payments that Americans receive from outside the United States minus all payments made to foreign-owned resources inside the United States.

• Net National Product (NNP) is equal to GDP minus depreciation.

• National Income (NI) is equal to NNP minus all taxes paid by businesses other than the corporate profits tax.

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Section 1-16


GNP–The Measure of National Income (cont.)

• Personal Income (PI) is the total amount of income received by individuals before taxes.

• Disposable Personal Income (DI) is PI less taxes.

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Discussion Question

Which measure of national income would you be interested in if you were trying to forecast sales of consumer goods?

Disposable personal income, which reflects the amount of money individuals have to spend.


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Section 1-24


Economic Sectors and Circular Flows

• The consumer sector includes individuals/households.

• The investment sector includes businesses.

• The government sector includes local, state, and federal levels of government.

• The foreign sector includes all consumers and producers outside the United States.

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Section 1-24b

Economic Sectors and Circular Flows (cont.)

Figure 13.3Circular Flow of Economic ActivityFigure 13.3Circular Flow of Economic Activity

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Section 1-30


The Output-Expenditure Model

• The equation for the output-expenditure model is GDP = C + I + G + F .

• The output-expenditure model is a macroeconomic model used to show aggregate demand by all the economic sectors.

• Each sector spends its income on different types of goods and services.

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Section

The Output-Expenditure Model (cont.)

Figure 13.3Circular Flow of Economic ActivityFigure 13.3Circular Flow of Economic Activity

End of Section 1

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Section 2-4


Introduction• Most people are surprised to discover how

hard the government works to collect and process data.

• Inflation is a rise in the general price level.

• It is important to track inflation because it distorts the economic statistics that we keep.

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Section 2-5

Introduction (cont.)

Figure 13.4Estimating Gross Domestic ProductFigure 13.4Estimating Gross Domestic Product

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Section 2-6


Constructing a Price Index

• A price index is used to measure changes in prices over time.

• A price index is created by selecting a base year and a representative market basket of goods.

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Section 2-7b

Constructing a Price Index (cont.)

Figure 13.5

Constructing the Consumer Price Index

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Discussion Question

What do price indices show?

The change in price relative to a base year.


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Section 2-8


Major Price Indices

• The consumer price index (CPI) reports changes in the prices of 80,000 consumer goods and services.

• The producer price index (PPI) reports changes in prices received by domestic producers for 3,000 commodities.

• The GDP price deflator is an index of average prices for all goods and services.

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Section 2-13


Real vs. Current GDP

• Real GDP is calculated by dividing current GDP by the implicit GDP price deflator and multiplying by 100.

• Converting current GDP into real GDP is useful for comparing over time.

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What is the importance of inflation when discussing economic statistics. Name any familiar products that you believe have been affected by a rise in inflation.

Section Close

End of Section 2

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Splash Screen Chapter 13 Economic Performance 2 Chapter Introduction 1 Economics and You A growing...

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