1. What are the three basic economic questions?2. How are these questions answered in a command

economy?3. Product differentiation is characteristic of what

market structure?4. “Good weather leads to an increase in Blueberry crop”

Demand or supply/ increase (right) or decrease (left)5. What economic problem does the U.S. share with

100% of all nations in the world?6. Describe equilibrium on a supply and demand graph.7. Show a PPC curve with a point representing inefficient

use of resources.

Review

EQ: How do we measure a nation’s EQ: How do we measure a nation’s wealth?wealth?

EQ: How do we

measure a nation’s wealth?

Intro Video

Gross Domestic Product

“GDP is the total market value of all final goods and services produced within a country in a given period of time.”

Activity: Breakdown the following parts of the definition.

What does each mean? total market value Of all final goods and services within a country in a given period of time

Definition of GDP

With a partner, what is included in GDP?

Gross STATE Product• California, it is often said, would be the world’s sixth- or seventh-largest economy if it was a

separate country. Actually, that would be the eighth, according to this map, as France (with a GDP of $2,15 trillion) is #8 on the aforementioned list.

• Texas’ economy is significantly smaller, exactly half of California’s, as its GDP compares to that of Canada (#10, $1,08 trillion).

• Florida also does well, with its GDP comparable to Asian tiger South Korea’s (#13 at $786 billion).

• Illinois – Mexico (GDP #14 at $741 billion) • New Jersey – Russia (GDP #15 at $733 billion) • Ohio – Australia (GDP #16 at $645 billion) • New York – Brazil (GDP #17 at $621 billion) • Pennsylvania – Netherlands (GDP #18 at $613 billion) • Georgia – Switzerland (GDP #19 at $387 billion) • North Carolina – Sweden (GDP #20 at $371 billion) • Massachusetts – Belgium (GDP #21 at $368 billion) • Washington – Turkey (GDP #22 at $358 billion) • Virginia – Austria (GDP #24 at $309 billion) • Tennessee – Saudi Arabia (GDP #25 at $286 billion) • Missouri – Poland (GDP #26 at $265 billion) • Louisiana – Indonesia (GDP #27 at $264 billion) • Minnesota – Norway (GDP #28 at $262 billion) • Indiana – Denmark (GDP #29 at $256 billion) • Connecticut – Greece (GDP #30 at $222 billion) • Michigan – Argentina (GDP #31 at $210 billion)

What is NOT included in GDP?

GDP is the sum of the following:

Consumption (C) Investment (I) Government Purchases (G) Net Exports (NX)

GDP = C + I + G + NX Why does GDP = Y? Think back, way back….

The components of GDP

Y =

Remember this?

–Every transaction has a buyer and a seller.

–Every dollar of spending by some buyer is a dollar of income for some seller.

Consumption (C):

The spending by households on goods and services, with the exception of purchases of new housing.

Investment (I): The spending on capital equipment, inventories, and

structures, including new housing. Government Purchases (G):

The spending on goods and services by local, state, and federal governments.

Does not include transfer payments such as social security

Net Exports (NX): Exports minus imports.

Components of GDP

1. You buy a movie ticket2. Purchase of a new house3. You cut your lawn4. You buy a new Toyota made in Japan5. Tuition for college6. Apartment rent7. The government pays a social security check8. Purchase of a share of Microsoft stock9. A stay at home mom cares for her children10. You sell concert tickets that you already purchased11. A farmer purchases a tractor12. You sell your house that you lived in for two years13. The U.S. exports minerals to Russia14. General Motors purchases Ford15. Your telephone bill

Summary - C, I, G, or NX, or NC

Come up with 10 (2 each) scenarios that

increase or decrease the GDP C, I, G, NX, and one that doesn’t count in GDP

5 volunteers Each volunteer holds their sign up if it

increases their component of GDP or down if it decreases.

GDP Scenarios

What is the GDP equation? What is the definition of nominal GDP? What is the definition of real GDP? What is the general rising of prices called? What is the purpose of the GDP deflator? What is the largest component of U.S. GDP?

Review

What is the percentage

breakdowns for the U.S.

What does this say about our economy?

Nominal GDP values the production of goods

and services at current prices. Real GDP values the production of goods and

services at constant prices.

Real vs Nominal GDP

Year # of hot

dogs sold

Price # of hamburgers sold

Price NominalGDP

2005 100 $1 50 $2

2006 150 $2 100 $3

2007 200 $3 150 $4

Nominal GDP

What is NOMINAL GDP for each

year?

REAL GDP

REAL GDP?

Year # of hot dogs sold

Price # of hamburgers sold

Price Real GDP

2005 100 $1 50 $2

2006 150 $2 100 $3

2007 200 $3 150 $4

What is REAL GDP for each year using

2005 base year?

GDP Deflator

G D P d efla to r =N o m in a l G D P

R eal G D P 1 0 0

What is the GDP deflator for 2005, 2006, and 2007

using our previous example?

GDP Deflator (cont).

R eal G D PN o m in a l G D P

G D P d efla to r2 0 X X2 0 X X

2 0 X X

1 0 0

Using the GDP Deflator for 2007, show the calculations to find real GDP. Did it match your original calculation for 2007 GDP?

Year P of

milkQ of milk

P of honey

Q of honey

Nominal GDP

RealGDP

Deflator

2005 (base)

$1 100 $2 50

2006 $1 200 $2 100

2007 $2 200 $4 100

Summary

• Did economic well-being rise more in 2006 or 2007? Explain?

1. What are the keys to capitalism?2. Law of Demand: A a decrease in ______________would

cause an increase in quantity demanded?3. What type of business organization has limited

liability?4. What is entrepreneurship?5. Minimum wage is an example of a price _________.

This type of government interference in the market causes a _____________.

6. Market clearing price is another term for ___________.

Review

GDP is the best single measure of the

economic well-being of a society. GDP per capita (per person) tells us the

income and expenditure of the average person in the economy.

Higher GDP per person indicates a higher standard of living.

GDP is not a perfect measure of the happiness or quality of life, however.

Is GDP a good measure of economic

well-being?

Some things that contribute to well-being are

not included in GDP. The value of leisure. The value of a clean environment. The value of almost all activity that takes place

outside of markets, such as the value of the time parents spend with their children and the value of volunteer work.

What does GDP not tell us?

Some perspective…

3 CD’s/3 CM’s

Summary

3 CD’s about GDP 3 CM’s about GDP