GROWTHPart 2

Economic

HOW GDP IS CALCULATED:

By what is produced (supplied)

By what is purchased

(demanded)

HOW GDP IS CALCULATED:Measuring GDP by what is produced means adding up goods and services in the following categories:

1. Durable Goods 2. Non-durable Goods 3. Services 4. Structures 5. Change in Inventories

HOW GDP IS CALCULATED:Durable Goods: Goods that do not

quickly wear out, or that do not need to be

replaced often.

HOW GDP IS CALCULATED:Non-durable Goods:

Goods that quickly wear out, or that need to be

replaced often. !

They may be defined either as goods that are

immediately consumed in one use or ones that have

a lifespan of less than 3 years

HOW GDP IS CALCULATED:Services:

Any intangible commodity. Usually, a task a skilled laborer performs for

others.

HOW GDP IS CALCULATED:Structures:

Buildings & monuments. !

Not only is the value of newly produced goods

and services added in to total GDP, but the value

of newly built structures is included as well.

HOW GDP IS CALCULATED:Change in Inventories: Inventories are goods that have been produced, but not yet sold. They are the

goods sitting in warehouses waiting to be sold.

!

“Change in inventories” refers to the difference between the last period inventory was measured, and the current period.

COMPONENTS OF GDP BY WHAT IS PRODUCED

Category:Percentage of a

Developed Nation’s GDP

Durable Goods 20%

Non-durable Goods 20%

Services 50%

Structures 10%

Change in Inventories 1%

HOW GDP IS CALCULATED:Measuring GDP by what is demanded means adding

up goods and services in the following categories:

1. Consumption 2. Investment 3. Government 4. Exports 5. Imports (negative)

HOW GDP IS CALCULATED:Consumption:

The value of all goods and services purchased

(or consumed).

HOW GDP IS CALCULATED:

Investment: Purchases of physical plants and equipment

by businesses. !

Owners invest money in equipment in order

to increase factory production.

HOW GDP IS CALCULATED:Government:

Money spent by the government (that does

not return to the citizens through social

welfare programs). !

For example, when the government buys a new

air fighter jet, or pays government employees

for their services.

HOW GDP IS CALCULATED:Exports:

Domestically made goods that are sold abroad. (Example:

goods made in South Korea and sold to

Thailand). !

We make money (increasing GDP) when

we sell exports.

HOW GDP IS CALCULATED:Imports:

Goods produced in other countries that are

purchased in this country.

!

Because it costs money to purchase imports,

the value of imports is negative, or, subtracted

from the total GDP.

COMPONENTS OF GDP BY WHAT IS DEMANDED

Category:Percentage of a

Developed Nation’s GDP

Consumption 70%

Investment 10-20%

Government 10-20%

Exports - Imports 0% in trade balance

Why do we want economic growth?

How is economic growth created?

SAY “YES” TO ECONOMIC GROWTH BECAUSE...

Historically, economic growth as been the primary vehicle for alleviating poverty and raising standards of living.

Economic growth creates new employment and profit opportunities in some industries (but growth reduces

opportunities in others).

GROWTH = STANDARD OF LIVINGThere is a correlation between and increase in GDP

and an increase in a country’s standard of living (because economic strength is one factor that goes into

calculating standard of living). However, GDP does not specifically tell us about human

health, environmental health, leisure time, or other components of human happiness and well-being.

HOW GROWTH IS CREATED:Worker productivity is the key to growth!

There are four components to economic growth, and improving these will cause an increase in growth.

1 - Population

2 - Human Capital

3 - Physical Capital

4 - Technology

HOW GROWTH IS CREATED:More workers, more growth

1) Population

If the number of workers in a country increases, the total

production and output of the country will

increase.

HOW GROWTH IS CREATED:Worker productivity is the key to growth!

2) Human Capital

This refers to the skills and education of workers. If people

improve their skills and education, productivity

increases.

HOW GROWTH IS CREATED:Worker productivity is the key to growth!

3) Physical Capital

This refers to factories, warehouses, and production equipment. If we improve this things we use to make goods, and workers can be

more productive.

HOW GROWTH IS CREATED:Worker productivity is the key to growth!

4) Technology

Technology includes brand new inventions that help us work more efficiently, but it also includes all the advances by

which people figure out how to make existing machines

produce more or higher quality.