Chapter 17: The American Economy
Section 1 Objectives:
1.) Understand why Goss Domestic Product is important to a nation.
2.)Discuss why GDP is difficult to measure.
Lesson 1: Gross Domestic Product(Page 466)
I. Why GDP Is Important
1. Product – anything that is produced; goods and services
2. Good is something you can touch
a. Examples: bike, cell phone, books, pens, clothes
3. Service is work done for someone for pay
a. Examples: repairing a car, giving a haircut, babysitting a child
A. GDP Measures Total Output
1. Gross Domestic Product (GDP) – total market value of all final products produced in a country during a single year
2. 2010; U.S. had a GDP about 15 trillion dollars, making it the world’s single largest national economy (about 20% of all goods and services in the world)
a. China was second with about $9 trillion
B. GDP Represents Income
1. Making goods and providing services create income for people in the economy
2. GDP is a way to measure the nation’s income
3. Includes purchases made by consumers, businesses, and the government
C. Factors of Production
1. Three types of resources used to make goods and provide services: natural resources, labor, and capital
2. Together with entrepreneurs, these are considered the factors of production
3. Entrepreneurs – risk-taking people who start and run businesses
a. Take risk with hope of a reward: business that earns money
4. Natural resources, labor, and capital work with entrepreneurs to generate income for the companies and workers that make and sell them
II. Measuring GDP
- Measuring GDP is difficult because there are so many different goods and services produced
- True of any economy, not just one the size of the U.S.
2. Since it is such an important measurement, governments use thousands of highly skilled economists to calculate GDP
A. GDP Only Includes Final Products
1. GDP includes only the price of final goods and services produced and sold
2. Final good or service is one that is sold to its final user
3. Intermediate goods go into making the final good
4. Example: bicycle is a final good, but the parts used to make the bicycle are intermediate goods and do not count towards GDP
5. GDP includes both consumer goods (goods we use, like bicycles & clothing) and producer goods (goods businesses use such as machines or office supplies)
B. What GDP Does Not Include
1. Intermediate goods do not count towards GDP because the value was counting when they were first sold
2. GDP also does not include work that family members do around the home
a. Example: Cooking or cleaning are not included
C. GDP Per Capita
1. GDP tells how large a country’s economy is, but does not tell us how productive an economy is
2. When comparing the output of countries, GDP per capita (Gross Domestic Product on a per-person basis) is better
a. GDP divided by population, tells us the GDP per person
3. Example: China has the second-largest economy, but since its population is so large, there are over 100 countries with larger GDP per capita
4. In wealthy countries like the U.S., the GDP per capita is in the then of thousands of dollars, in poor countries, it is just a few hundred dollars
D. The Standard of Living
1. Standard of living – quality of life of the people living in a country
2. GDP does not measure the standard of living
3. Country with a GDP that goes to a very few rich people might have a lower standard of living than a country of equal size that produces its goods and services for everyone
4. Example: China has a productive economy, but it also a big polluter, which lowers its standard of living
Section 1 Note Check Questions:
1.) Why does GDP represent income for all factors of production?
All these factors are used in producing products and companies must pay workers and owners of the other factors for their use
2.) Name the four (4) factors of production.
Natural resources, Labor, Capital, and Entrepreneurship
3.) List three (3) things not included in GDP.
1.) Intermediate goods & services (only final products)
2.) Value of used goods (counted the first time)
3.) Work family members do around the home
4.) What is the difference between GDP and GDP per capita?
GDP is the total value of all final goods sold in a country per year, thus it represents only the country, whereas GDP per capita divides the GDP per population, giving you an idea on how much individuals make in that country
5.) Why is GDP not necessarily an accurate measure of a nation’s standard of living?
It does not take into consideration population, the recipients of production, and negative effects of production, such as pollution