Gross Domestic Product - Government and Economics
Transcript of Gross Domestic Product - Government and Economics
Economics
Gross Domestic Product
In this lesson, students will be able to identify
characteristics of the Gross Domestic Product.
Students will be able to identify and/or define
the following terms:
Gross Domestic Product (GDP)
Real GDP
Inflation
Durable Goods
Economics
Do you
remember
the Invisible
Hand?
It was the idea
that the
economy would
always fix
itself.
Economics
The Effects of the Great Depression on
Economists:
• The Great Depression taught economists that they needed some way of tracking the nation’s economy.
• By tracking the nation’s economy, economists could determine if the economy was in danger of a recession or a depression and could try to apply economic policies to prevent such hardships from occurring.
Economics
Gross Domestic Product (GDP)
• The Gross Domestic Product is the dollar value of all final goods and services produced within a country’s borders in a given year.
• In order for a good to be included in a nation’s GDP, it must be made in that country.
• It doesn’t matter if the factory is owned by a foreign company as long as the factory is located in the country where GDP will be calculated.
Economics
By tracking GDP, economists can tell whether
an economy is growing (expanding) or
shrinking (contracting).
Economics
Real GDP
• While nominal GDP is expressed in current
prices, real GDP is adjusted for inflation.
• Inflation means rising prices. The problem with
GDP is it could appear to rise when in reality
only prices rose.
• In other words, one million in1970 dollars is not
the same as one million in 2006 dollars. The
2006 dollars must be adjusted to 1970 dollars in
order to effectively compare the two amounts.
Economics
Durable and Nondurable Goods
• The goods included in GDP are durable and nondurable goods.
• Durable goods are goods that last for a relatively long time, such as refrigerators and cars.
• Nondurable goods last for a short period of time like food and paperback books.
Economics
Just like going
for your yearly
physical allows
you to track your
health and prevent
more serious problems
from occurring, GDP
tracks the economy’s
health.
Economics
Questions for Reflection:
• What did economists believe about the economy before the Great Depression?
• What is Gross Domestic Product or GDP and why is it important?
• Why do economists adjust GDP for inflation and what is this adjusted GDP called?
• What is the primary difference between durable and nondurable goods?
Economics
Business Cycle
In this lesson, students will be able to identify characteristics of the business cycle.
Students will be able to identify and/or define the following terms:
Business Cycle
Expansion
Peak
Contraction
Trough
Economics
A business cycle is a period of macroeconomic
expansion followed by a period of contraction.
Economics
The Four Phases of a Business Cycle
• There are four phases in a business cycle:
Expansion: a period of economic growth
Peak: the height of the expansion
Contraction: a period of economic decline
Trough: the lowest point of the contraction
Economics
When an economy
is expanding or
growing, many people
have jobs and many
goods and services
are being produced
and sold. At the peak
of the expansion,
Gross Domestic Product
is as high as it will
go for that particular
business cycle.
Economics
During a
period of
contraction,
more people
are unemployed
and fewer goods
and services are
being produced
and sold. Not
all contractions
are equally
severe.
Economics
Recessions and Depressions
• Each phase of the business cycle is determined by monitoring Gross Domestic Product.
• A contraction that lasts for at least six months is called a recession.
• A particularly severe and long contraction is called a depression.
Economics
The Great
Depression
was the most
severe economic
contraction in the
history of the
world. It
permanently
changed the way
economists think.
Economics
Factors Which Affect the Business
Cycle
• The following four factors can affect the
business cycle:
Investment in Businesses
Interest Rates
Consumer Expectations
External Shocks
Economics
The more money people invest in businesses,
the more money businesses have to grow.
Investment affects the business cycle.
Economics
Interest is the price of borrowed money. When
interest rates are high, people borrow less.
Businesses borrow less too.
Interest rates affect the business cycle.
Economics
When people are optimistic about the future,
they spend more money. Optimism affects
the business cycle.
Economics
External shocks can be positive or negative.
An earthquake is a negative external shock.
It affects the business cycle.
Economics
Questions for Reflection:
• Define the business cycle.
• What are the four phases of the business
cycle and explain each phase?
• What are the four factors that affect the
business cycle and how does each factor
affect the business cycle?
• What is the relationship between Gross
Domestic Product and the four phases of
the business cycle?
Economics
Economic GrowthIn this lesson, students will be able to
identify factors which lead to
macroeconomic growth.
Students will be able to identify and/or
define the following terms:
Real GDP per capita
Capital Deepening
Savings Rate
Technological Progress
Economics
Population and the Economy
• A nation’s population tends to grow.
• Gross Domestic Product must keep up
with the population growth rate.
• If the economy does not continue to grow
as population grows, unemployment and
hunger will increase.
Economics
Real GDP Per Capita
• It is important to remember that real GDP is
GDP that has been adjusted for inflation.
• Per capita means per person.
• Therefore, real GDP per capita is a way of
determining how much money each person in a
society would receive if wealth from GDP was
divided equally among the people of that nation.
Economics
Capital Deepening
• One way to increase economic productivity is through capital deepening.
• Capital deepening is the process of increasing the amount of capital per worker.
• Better educated workers can produce more output per hour of work.
Economics
Savings Rate
• Money that is saved is available for investment.
• The savings rate is the portion of disposable income spent to the portion of disposable income saved.
• A country with a higher savings rate will be more likely to experience economic growth because more money will be available to invest in businesses.
Economics
The more money citizens of a country
save, the more money is available
for businesses to expand.
Economics
When education rates and savings rates
increase, the economy grows. And
when the economy grows, people have
jobs, shelter, food, and the comforts of life.
Economics
Technological Progress
• Another key source of economic growth is
technological progress.
• This is an increase in efficiency gained by
producing more output.
• Technological progress like email greatly
increases business efficiency.
Greater efficiency means greater profits.
Economics
Questions for Reflection:
• Why must the economy continue to grow as population increases?
• Why is it important for economists to calculate real GDP per capita?
• What is capital deepening and how does it affect economic growth?
• How does the savings rate help the economy to grow?
• Why is technological progress important?