So, How do you fix the US debt?

Increase Taxes.Increase Taxes. Cut government Cut government

spending.spending. Cut jobsCut jobs Cut programsCut programs

OR…

Both McCain and Both McCain and Obama have talked Obama have talked about CUTTING about CUTTING taxes.taxes. Cutting taxes means Cutting taxes means

there is more money in there is more money in our pocket.our pocket.

We’ll spend or invest We’ll spend or invest that money and make that money and make more jobs for the more jobs for the economy.economy.

How would these plans work?

According to the Tax According to the Tax Payers Institute and Payers Institute and the Brookings Institute the Brookings Institute in Washington – how in Washington – how would the Obama and would the Obama and McCain “plans” work McCain “plans” work for the economy?for the economy?

Barack Obama

Increasing taxes for Increasing taxes for corporations and people corporations and people who make more than $2-who make more than $2-million a year.million a year.

More spending on More spending on programs to educate programs to educate people.people.

And what about the debt?And what about the debt? INCREASE THE DEBT by INCREASE THE DEBT by

2.8 Trillion.2.8 Trillion.

John McCain

Cut taxes for all Cut taxes for all economic classes.economic classes.

Cut government Cut government spending. spending.

And the debt?And the debt? INCREASE THE INCREASE THE

DEBT BY $5-Trillion!DEBT BY $5-Trillion!

Three Terms to know about the US Economy in 2008 RecessionRecession DepressionDepression InflationInflation

Recession

People HAVE money, People HAVE money, but are afraid to spend but are afraid to spend it!it!

What happens when What happens when people don’t spend people don’t spend money??money??

Recession

People get scared about People get scared about their futures and don’t their futures and don’t spend money.spend money.

That leads to That leads to unemployment.unemployment.

That leads to less spending.That leads to less spending. That leads to more That leads to more

unemployment.unemployment. That leads to more news That leads to more news

that scares people into not that scares people into not spending their money.spending their money.

Recession vs. DEPRESSION

Depression – There is Depression – There is NO money.NO money.

1929 – 1940 in the US 1929 – 1940 in the US economy.economy.

Can there be a depression again?

Probably not.Probably not. More globalization More globalization

helps keep money helps keep money flowing.flowing.

There are government There are government regulations and regulations and agencies that in 1929 agencies that in 1929 didn’t exist to stop the didn’t exist to stop the Depression from Depression from happening.happening.

Inflation

The price of goods The price of goods goes up faster than our goes up faster than our wages!wages!

Our money doesn’t Our money doesn’t buy as much.buy as much.

Choices?Choices? Work harder to “keep Work harder to “keep

up”up” Not being able to buy Not being able to buy

as much.as much.

So, how do we know where we are in the US economy? Perceptions of peoplePerceptions of people StatisticsStatistics

Gross Domestic Product

How Big is the How Big is the Economy?Economy?

GDP = C+I+G+X-M ConsumptionConsumption InvestmentInvestment Govt. Govt.

spendingspending ExportsExports ImportsImports

Gross Domestic Product

GDP is the total market GDP is the total market value of all final goods value of all final goods and services that are and services that are produced within the produced within the borders of a nation in a borders of a nation in a year. year.

What are final goods and services? Things that are produced Things that are produced

and services that are and services that are performed that are not performed that are not used to create other used to create other goods and services.goods and services.

Final Goods:

Hair cuts.Hair cuts. Clothes.Clothes. CupcakesCupcakes Anything Anything

consumed.consumed.

Final Goods vs. Intermediate Goods and GDP IntermediatIntermediat

e goods are e goods are used to used to produce produce another another good.good.

IntermediatIntermediate goods are e goods are left out of left out of GDP.GDP.

Juan’s FINAL GOOD.

Juan bought a digital camera Juan bought a digital camera for $700. He used the camera for $700. He used the camera to take pictures for his family to take pictures for his family and friends. He is the end user and friends. He is the end user of the camera - so it is a final of the camera - so it is a final good and added to GDP.good and added to GDP.

Helga’s INTERMEDIATE GOOD. Helga is a part-time Helga is a part-time

photographer. She is hired to photographer. She is hired to take pictures of a wedding. take pictures of a wedding. She bought the same camera She bought the same camera for $700 and then sold the for $700 and then sold the pictures for $900. The cost of pictures for $900. The cost of camera is not added to GDP.camera is not added to GDP.

What do you think?

Mort is a CPA. He is paid $125 Mort is a CPA. He is paid $125 by Pat to fill out his income tax by Pat to fill out his income tax forms.forms.

Mort fills out income tax forms Mort fills out income tax forms for Pines Funeral Home. The for Pines Funeral Home. The fee is $380. fee is $380.

GDP is determined by MARKET VALUE.

Whatever is Whatever is actually actually paid.paid.

GDP includes GDP includes total money total money paid for final paid for final goods.goods.

Difference between GNP and GDP? Lowell is a comedian and U.S. Lowell is a comedian and U.S.

citizen. He works in Canada and citizen. He works in Canada and the U.S. He made $22,000 in the the U.S. He made $22,000 in the U.S. and $15,000 in Canada. U.S. and $15,000 in Canada.

GNP for U.S. = $37,000; GNP for GNP for U.S. = $37,000; GNP for Canada = $0.Canada = $0.

GDP U.S. = $22,000; GDP Canada GDP U.S. = $22,000; GDP Canada $15,000.$15,000.

Three Sectors Make up GDP...

Slice 1Slice 2Slice 3Slice 4

Manufacture Manufacture SectorSector

Service Service SectorSector

ConstructionConstruction

How large is the GDP?

In 2006 GDP In 2006 GDP was $13.13 was $13.13 TRILLION!TRILLION!

So, what does that mean for YOU?

GDP per capitaGDP per capita $45,845$45,845

What country in the world has the highest GDP per capita?

GUESS???GUESS???

Luxembourg

GDP per capita: GDP per capita: $104,673$104,673

A False Correlation!A False Correlation! Only a population of Only a population of

480,000 people!480,000 people!

#2?

NORWAY!NORWAY! GDP per capita:GDP per capita:

$83,922$83,922

#3 in GDP per Capita?

QatarQatar $72,849$72,849

#4?

IcelandIceland GDP per capitaGDP per capita

$63,830$63,830

#5

BruneiBrunei GDP per capita: GDP per capita:

$51,005$51,005

#6???

THE USA!THE USA!

Comparison of GDP in the world

The Poorest in GDP

The Poorest Countries GDP

Out of the 179 Out of the 179 countries that do countries that do submit data, 36% of submit data, 36% of the world’s countries the world’s countries have people earning have people earning LESS than $1000 a LESS than $1000 a year.year.

The poorest?

ZimbabweZimbabwe GDP per capitaGDP per capita

$55 per year.$55 per year.

Why is Zimbabwe so poor?

Corruption of the Corruption of the government.government. Rigged Presidential elections.Rigged Presidential elections. Anyone who has wealth is Anyone who has wealth is

accused of crimes and wealth accused of crimes and wealth taken.taken.

A devastating inflation rate.A devastating inflation rate. US inflation rate: 6%US inflation rate: 6% Zimbabwe inflation rate: Zimbabwe inflation rate:

66,000% or 100,500%66,000% or 100,500% Loaf of bread costs $148Loaf of bread costs $148 40 lbs of Zimbabwe money 40 lbs of Zimbabwe money

= $100 US = $100 US

Also near the bottom:

LiberiaLiberia $195$195

Democratic Republic Democratic Republic of Congoof Congo $166$166

BurundiBurundi $128 $128

What do you think will be the questions for the test? What is the equation for the What is the equation for the

GDP?GDP? What are two ways you could What are two ways you could

solve the national debt?solve the national debt? What would McCain and What would McCain and

Obama do about the debt?Obama do about the debt? What are the three top things What are the three top things

govt. spends money on?govt. spends money on? Depression, Recession, Depression, Recession,

Inflation definitions:Inflation definitions: What is the national debt within What is the national debt within

.1 ?.1 ? What is the GDP for the US?What is the GDP for the US?