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Chapter 12 Gross Domestic Product and Growth. Gross Domestic Product Goods and services produced within the borders of a country Geography-not citizenship.

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Presentation on theme: "Chapter 12 Gross Domestic Product and Growth. Gross Domestic Product Goods and services produced within the borders of a country Geography-not citizenship."— Presentation transcript:

1 Chapter 12 Gross Domestic Product and Growth

2 Gross Domestic Product Goods and services produced within the borders of a country Geography-not citizenship

3 Who cares about GDP? Its unreliable!!!

4 Non-market activities are NOT countedcannot be measured as they are not sold in a market

5 Illegal Business Activities are not counted because they are illegaleven though they are sold in a market and are measurable

6 Unreported Sales

7 Things that dont last long (non-durable goods) Durable goodsthings that last at least three years

8 Disasters and Wars increase GDP but are not necessarily beneficial

9 Intermediate goods and services are not counted in GDP

10 Only FINAL goods and services are counted!

11 GDP also does not include: Second hand salesthough salesmans commission does count Second hand salesthough salesmans commission does count Public/Private transfer payments Public/Private transfer payments Purely financial transactionsbut brokers fees count Purely financial transactionsbut brokers fees count

12 Expenditures Approach GDP=C+I+G+Xn Consumption spending (consumers)65% Consumption spending (consumers)65% Investment spending (business)15% Investment spending (business)15% Government spending(government)15% Government spending(government)15% Net exports(trade) 5% Net exports(trade) 5%

13 Consumption

14 Investment

15 Government Spending

16 Exports-Imports=net exports

17 Since GDP is based on prices we must adjust for inflation of current prices Nominal vs. real GDP

18 GDP is measure of economic health of a nation

19 Business Cyclevisual representation of the ups and downs of an economy

20 Parts of a Business Cycle

21 Business Cycles reflect the increases/decreases of GDP …was originally thought to be a natural occurrence

22 The idea that government should not get involved in the economy changed during the Great Depression

23 John Maynard Keynes Encouraged government spending to offset the decrease in consumption and investment spending during the Great Depression

24 Government spending serves as a counter-weight IT KEEPS THE ECONOMY IN BALANCE

25 GDP is not a measure of the quality of life

26 High Stress = high GDP

27 Low stress = low GDP

28 GDP per capita GDP divided by population

29 Nations by GDP per capita Liechtenstein $118,000 Liechtenstein $118,000 Qatar $111,000 Qatar $111,000 Luxembourg $ 81,200 Luxembourg $ 81,200 Bermuda $ 69,900 Bermuda $ 69,900 Norway $ 59,900 Norway $ 59,900 Kuwait $ 57,500 Kuwait $ 57,500 Jersey $ 57,000 Jersey $ 57,000 Singapore $ 51,600 Singapore $ 51,600 Brunei $ 47,500 Brunei $ 47,500

30 #10 United States United States $47,500 $47,500

31 Lowest GDP per capital Afghanistan$800 Afghanistan$800 Malawi 800 Malawi 800 Cent. Afr. Rep. 700 Cent. Afr. Rep. 700 Niger 700 Niger 700 Eritrea 700 Eritrea 700 Guinea-Bissau 600 Guinea-Bissau 600 Somalia 600 Somalia 600 Liberia 500 Liberia 500

32 Burundi$300 Burundi$300 Congo$300 Congo$300 Zimbabwe$200 Zimbabwe$200

33 Other GDPs per capita 37 Japan$34, Japan$34, Israel 28, Israel 28, Mexico 14, Mexico 14, Russia 16, Russia 16, China 6, China 6, Iraq 3, Iraq 3, India 2, India 2,900

34 Low GDP does not mean a nation is lazy It means they have few factors of production!

35 Factors of Production Land Land Labor Labor Capital Capital Entrepreneurship Entrepreneurship


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