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Chapter Introduction
Section 1: Measuring the Nation’s Output and Income
Section 2: Population and Economic Growth
Section 3: Poverty and the Distribution of Income
Visual Summary
Chapter Intro 1
Have you ever thought about what it means when someone is described as “successful”? Is the person wealthy, happy, or well known? Work with a partner and develop a list of the qualities or characteristics for your definition of successful. Share your list with the class and listen carefully to what the other students think. Is there a consensus among your classmates? Read Chapter 12 to learn more about how economists assess the success of a nation’s economy by measuring its growth and performance.
Chapter Intro 2
Economists look at a variety of factors to assess the growth and performance of a nation’s economy.
Section 1-Preview
Section Preview
In this section, you will learn how we measure the output and income of a nation.
Section 1-Key Terms
Content Vocabulary
• macroeconomics
• gross domestic product (GDP)
• intermediate products
• secondhand sales
• nonmarket transactions
• underground economy
• base year
• real GDP
• current GDP
• GDP per capita
• gross national product (GNP)
• net national product (NNP)
• national income (NI)
Section 1-Key Terms
Content Vocabulary (cont.)
• personal income (PI)
• disposable personal income (DPI)
• household
• unrelated individual
• family
• output-expenditure model
• net exports of goods and services
Academic Vocabulary
• excluded • components
A. A
B. B
C. C
Section 1
Is it really possible for a factory to keep track of its total output when it produces a variety of product lines?
A. Yes
B. No
C. Not sure
A B C
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Section 1
Measuring the Nation’s Output and Income
• Macroeconomics deals with the economy as a whole in determining a nation’s growth rate.
• GDP is one of the most important macro measures.
Section 1
GDP—The Measure of National Output (cont.)
• Gross domestic product (GDP)— measures final output each year; is estimated every three months and revised after that.
Estimating Total Annual Output
Section 1
• Items excluded from GDP
– Intermediate products
– Secondhand sales
– Nonmarket transactions
– Underground economy
GDP—The Measure of National Output (cont.)
Estimating Total Annual Output
Section 1
• GDP must be adjusted for inflation.
• Constant prices in a base year are tracked for this purpose.
GDP—The Measure of National Output (cont.)
– Real GDP
– Current GDP
Current GDP and Real GDP
Section 1
• Economists calculate GDP per capita to determine how the output of one country compares to another.
GDP—The Measure of National Output (cont.)
Profiles in Economics:John Kenneth Galbraith
Section 1
• GDP has limitations.
– GDP tells us nothing about composition of output.
– GDP tells little about the impact of production on quality of life.
– Some GDP is produced to control activities with little utility.
GDP—The Measure of National Output (cont.)
Section 1
• GDP is a measure of voluntary transactions and therefore an indicator of our overall economic health.
GDP—The Measure of National Output (cont.)
The Global Economy & YOU
A. A
B. B
C. C
D. D
Section 1
A B C D
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Why is GDP the single most important economic statistic compiled?
A. GDP changes can influence national elections.
B. Measures economic health overall
C. Illustrates production’s impact on quality of life
D. Indicates conditions of world economy
Section 1
GNP—The Measure of National Income
National income can be measured in a number of different ways.
Section 1
• GDP has two sides.
– Represents output
– Represents equal amount of income
GNP—The Measure of National Income (cont.)
Section 1
• Measures of national income
– Gross national product (GNP) focuses on total income rather than output.
– Net national product (NNP)
– National income (NI)
– Personal income (PI)
– Disposable personal income (DPI)
GNP—The Measure of National Income (cont.)
A. A
B. B
C. C
Section 1
Which measure of income shows the actual amount of money consumers are able to spend?
A. Personal income
B. National income
C. Disposable personal income
A B C
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Section 1
Economic Sectors and Circular Flows
The production of output generates income which flows through different sectors of the economy.
Section 1
• Income generated by production flows to businesses, government, and consumer sectors.
Economic Sectors and Circular Flows (cont.)
Circular Flow of Economic Activity
Section 1
• The largest sector in the economy is the household or consumer.
– Unrelated individual
– Family
Economic Sectors and Circular Flows (cont.)
Section 1
• Business or investment sector
– Proprietorships, partnerships, and corporations
Economic Sectors and Circular Flows (cont.)
Section 1
• Government or public sector
• Foreign sector
Economic Sectors and Circular Flows (cont.)
A. A
B. B
C. C
D. D
Section 1
A B C D
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Which of the following sectors does not have a specific source of income?
A. Consumers
B. Government
C. Foreign
D. Business
Section 1
The Output—Expenditure Model
The output-expenditure model is used to explain aggregate economic activity.
Section 1
• The circular flow can be represented by the output-expenditure model.
The Output—Expenditure Model (cont.)
– GDP = C + I + G + (X – M)
Section 1
• Consumers spend income on goods and services used by households.
• Income that is not spent appears as personal saving and borrowed by the business and government sectors.
The Output—Expenditure Model (cont.)
Section 1
• Investment sector spends income on labor, factories, equipment, inventories, and other investment goods.
• Government sector spends income on national defense, income security, roads, etc.
• Foreign sector buys U.S. goods that make up our GDP.
• Foreign sector purchases are called net exports of goods and services.
The Output—Expenditure Model (cont.)
A. A
B. B
C. C
Section 1
What effect do you think the health-care industry has on GDP?
A. Positive effect
B. Negative effect
C. Balances out
A B C
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Section 2-Preview
Section Preview
We are interested in population because it makes up the economy’s largest sector, the consumer sector, and affects the economic performance of a nation.
Section 2-Key Terms
Content Vocabulary
• census
• urban population
• rural population
• center of population
• infrastructure
• baby boom
• population pyramid
• dependency ratio
Academic Vocabulary
• residence • projected
• demographers
• fertility rate
• life expectancy
• net immigration
A. A
B. B
Section 2
Do you know how often the United States conducts a census?
A. Yes
B. No
A B
0%0%
Section 2
Population and Economic Growth
• The U.S. Constitution requires the government to take a census that includes place of residence.
• Official census
– Taken every 10 years
– Used to apportion number of representative that each state elects to Congress
Section 2
Population in the United States
The country’s population has shifted from a fast-growing, mostly rural population to a slower-growing, mostly urban one.
Section 2
Population in the United States (cont.)
• Congress permanently established the U.S. Census Bureau in 1902.
• Census data are presented in a number of ways:
– Urban population
– Rural population
– Household trends
Section 2
– Regional changes
• Population shift is indicated by the center of population.
Population in the United States (cont.)
– GDP per capita and GNP per capita for comparisons with other countries
Center of Population, 1790–2000
Section 2
• If population grows faster than its output, a country could end up with more mouths than it can feed.
• If population grows too slowly there, may not be enough workers to sustain economic growth with more demand on resources.
• Modest shifts in the population can cause major infrastructure problems in the future.
Population in the United States (cont.)
A. A
B. B
C. C
D. D
Section 2
A B C D
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What is the most significant impact that population changes have brought about in your area?
A. Housing prices have increased/decreased.
B. Traffic congestion has increased/decreased.
C. Recreation areas have been lost/gained.
D. Cost of living has increased/decreased.
Section 2
Projected Population Trends
Fertility, life expectancy, and net immigration influence population trends.
Section 2
• Political, community, and business leaders are all interested in population trends.
– Age and gender
Projected Population Trends (cont.)
Projected Distribution of the Population by Age and Gender, 2010
• Baby boom
• Population pyramid
• Dependency ratio
Section 2
– Race and ethnicity
– Population growth as determined by demographers
Projected Population Trends (cont.)
• Changes in fertility rates
• Life expectancy
• Immigration and net immigration
Projected Change in U.S. Population by Race and Ethnic Origin, 2000–2050
Section 2
• Demographics examined here point to a population that is likely to grow more slowly in the future.
• Increases in productivity can offset the negative effects of a declining population growth.
• A larger concern is age composition—as the population matures, there is a greater demand for health-care related products and services along with retirement funds.
Projected Population Trends (cont.)
A. A
B. B
C. C
D. D
Section 2
A B C D
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What is the life expectancy at birth today?
A. 82.1 years
B. 75.9 years
C. 68.4 years
D. 79 years
Section 3-Preview
Section Preview
In this section, you will learn about the factors that contribute to income inequality and the programs that have been implemented to reduce poverty.
Section 3-Key Terms
Content Vocabulary
• poverty threshold
• poverty guidelines
• Lorenz curve
• welfare
• food stamps
• Medicaid
• Earned Income Tax Credit (EITC)
Academic Vocabulary
• impact • uniform
• enterprise zone
• workfare
• negative income tax
A. A
B. B
Section 3
Are you familiar with the term “working poor”?
A. Yes
B. No
A B
0%0%
Section 3
Poverty
A portion of the U.S. population lives in poverty, and the gap in the distribution of income is widening every year.
Section 3
Poverty (cont.)
• Individuals classified as living in poverty have incomes that fall below the poverty threshold.
• Simplified poverty thresholds appear as poverty guidelines and are used to determine eligibility for federal programs.
Poverty Guidelines
Section 3
• Economists are interested in how income is distributed among households.
• Lorenz curve—shows how the actual distribution of income varies from an equal distribution.
Poverty (cont.)
The Distributed Income
A. A
B. B
C. C
Section 3
In 2006, a household of four with an annual income under what amount would be eligible for certain federal programs?
A. $23,400
B. $20,000
C. $18,500
A B C
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Section 3
Reasons for Income Inequality
Lack of education and uneven distribution of wealth are among the reasons for poverty.
Section 3
• Reasons for varied income
– Education
– Wealth
– Tax law changes
– Decline of unions
Reasons for Income Inequality (cont.)
Section 3
– More service jobs
– Monopoly power
– Discrimination
– Changing family structure
Reasons for Income Inequality (cont.)
A. A
B. B
C. C
D. D
Section 3
A B C D
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Is income inequality specific to the United States?
A. Yes
B. No
C. Applies only to industrialized nations
D. Affects all nations
Section 3
Antipoverty Programs
Since the 1960s, the government has experienced modest success with a number of anti-poverty programs.
Section 3
• Welfare programs designed to help the needy
– Income assistance
– General assistance
Antipoverty Programs (cont.)
Poverty in the United States: Total Number and Rate
• Food stamps
• Medicaid
Section 3
– Social service programs
– Tax credits
Antipoverty Programs (cont.)
• Earned Income Tax Credit (EITC)
– Enterprise zones
– Workfare programs
– Negative income tax
Section 3
• Economic growth by itself is not sufficient to reduce poverty.
Antipoverty Programs (cont.)
A. A
B. B
C. C
D. D
Section 3
A B C D
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What can you do to help yourself stay out of poverty?
A. Get an education
B. Make wise choices and investments
C. Work hard
D. All of the above
National Output and Income Gross domestic product (GDP) measures the nation’s output, while gross national product (GNP) measures the nation’s income.
VS 1
VS 2
Population Governments count the population and project population trends to plan the use of resources and to prepare infrastructure.
VS 3
Poverty People are described as living in poverty if they live below an income level called the poverty threshold. Poverty has a number of causes, and governments have established some programs to reduce it.
Figure 1
Figure 2
Figure 3
Figure 4
Figure 5
Figure 6
Figure 7
Figure 8
Figure 9
Figure 10
Profile
John Kenneth Galbraith (1908–2006)
• advocated public works funding in The Affluent Society
• served as economic adviser to five presidents
Concepts Trans
DFS Trans 1
DFS Trans 2
DFS Trans 3
Vocab1
macroeconomics
part of economics that deals with the economy as a whole and uses aggregate measures of output, income, prices, and employment
Vocab2
gross domestic product (GDP)
the dollar value of all final goods, services, and structures produced within a country’s national borders during a one-year period
Vocab3
intermediate products
products that are components of other final products included in GDP
Vocab4
secondhand sales
sales of used goods not included in GDP
Vocab5
nonmarket transaction
economic activity not taking place in the market and, therefore, not included in GDP
Vocab6
underground economy
unreported legal and illegal activities that do not show up in GDP statistics
Vocab7
base year
year serving as point of comparison for other years in a price index or other statistical measure
Vocab8
real GDP
gross domestic product after adjustments for inflation
Vocab9
current GDP
gross domestic product measured in current prices, unadjusted for inflation
Vocab10
GDP per capita
gross domestic product on a per person basis; can be expressed in current or constant dollars
Vocab11
gross national product (GNP)
total dollar value of all final goods, services, and structures produced in one year with labor and property supplied by a country’s residents, regardless of where the production take place
Vocab12
net national product (NNP)
GNP less depreciation charges for wear and tear on capital equipment
Vocab13
national income (NI)
net national product less indirect business taxes
Vocab14
personal income (PI)
total amount of income going to the consumer sector before individual income taxes are paid
Vocab15
disposable personal income (DPI)
personal income less individual income taxes
Vocab16
household
basic unit of consumer sector consisting of all persons who occupy a house, apartment, or separate living quarters
Vocab17
unrelated individual
person living alone even though that person may have relatives living elsewhere
Vocab18
family
two of more persons living together who are related by blood, marriage, or adoption
Vocab19
output-expenditure model
macroeconomic model describing aggregate demand by the consumer, investment, government, and foreign sectors
Vocab20
net exports of goods and services
net expenditures by the foreign sector; equal to total exports less total imports
Vocab21
excluded
not counted or included
Vocab22
components
parts of something
Vocab23
census
complete count of population, including place of residence
Vocab24
urban population
those persons living in incorporated cities, towns, and villages with 2,500 or more inhabitants
Vocab25
rural population
those persons not living in urban areas
Vocab26
center of population
point where the country would balance if it were flat and everyone weighed the same
Vocab27
infrastructure
the highways, mass transit, communications, power, water, sewerage, and other public goods needed to support a population
Vocab28
baby boom
historically high birthrate years in the United States from 1946 to 1964
Vocab29
population pyramid
diagram showing the breakdown of population by age and gender
Vocab30
dependency ratio
number of children and elderly people in the population for every 100 persons in the 18 to 64 working-age bracket
Vocab31
demographer
person who studies growth, density, and other characteristics of the population
Vocab32
fertility rate
number of births that 1,000 women are expected to undergo in their lifetime
Vocab33
life expectancy
average remaining life span in years for persons who attain a given age
Vocab34
net immigration
net population change after accounting for those who leave as well as enter a country
Vocab35
residence
the place where a person lives
Vocab36
projected
calculated as a future outcome
Vocab37
poverty threshold
annual dollar income used to determine the number of people in poverty
Vocab38
poverty guidelines
administrative guidelines used to determine eligibility for certain federal programs
Vocab39
Lorenz Curve
graph showing how the actual distribution of income differs from an equal distribution
Vocab40
welfare
government or private agency programs that provide general economic and social assistance to needy individuals
Vocab41
food stamps
government-issued coupons that can be exchanged for food
Vocab42
Medicaid
joint federal-state medical insurance program for low-income people
Vocab43
Earned Income Tax Credit (EITC)
federal tax credits and cash payments for low-income workers
Vocab44
enterprise zone
area free of tax laws and other operating restrictions
Vocab45
workfare
program requiring welfare recipients to work in exchange for benefits
Vocab46
negative income tax
tax system that would make cash payments to individuals with incomes below certain levels
Vocab47
impact
effect
Vocab48
uniform
even or consistent
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