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REAL GDP Must take Inflation into account (this means you subtract it out to find the real value) Standard 12.4: Students analyze the elements of the U.S.

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Presentation on theme: "REAL GDP Must take Inflation into account (this means you subtract it out to find the real value) Standard 12.4: Students analyze the elements of the U.S."— Presentation transcript:

1 REAL GDP Must take Inflation into account (this means you subtract it out to find the real value) Standard 12.4: Students analyze the elements of the U.S. labor market Standard 12.5: Students analyze aggregate economic behavior in the U.S. economy SWBAT: Define and understand the relationship between Real GDP and per capita income

2 Warm-Up GDP-Included or Excluded? 1. A monthly check received by an economics student who has been given a scholarship. 2. The purchase of a 2 nd hand tractor by a farmer. 3. You cash a savings bond. 4. The service of a mechanic fixing the radiator on his car. 5. Social Security checks received by your retired grandmother. 6. Income received from clipping out coupons.

3 Did Movie Tickets Cost the Same 5 years ago??? Explain why movie tickets cost more now than 5 years ago. What is our target inflation per year? What would be the problem with: Too high inflation? Too low inflation?

4 Must Take Into Account Inflation: Even when measuring GDP or GNP, it is not good enough to add up the numbers through the Expenditure Approach or the Flow of Income Approach. You have to take into account the inflation rate!!!

5 Nominal GDP – Inflation Rate = Real GDP Nominal GDP does not take into account the increase in prices due to inflation Real GDP takes into account the inflation for that year Vs.

6 Practice Problems: 1. What is nominal GDP when Real GDP is 2% and Inflation Rate is 3%? 2. What is the inflation rate when nominal GDP is 6% and Real GDP was 4%? 3. What is Real GDP when nominal GDP is 7% and Inflation Rate is 5%?

7 Per Capita GDP (per person GDP) Per Capita GDP measures the average income earned by a citizen of a country. GDP per capita is often used as an indicator of standard of living in an economy.standard of living economy A higher per capita GDP indicates a higher standard of living and vice versa.

8 Standard of Living refers to the quality and quantity of goods and services available to people, and the way these goods and services are distributed within a population. It is generally measured by standards such as real income (i.e. inflation adjusted) per person and poverty rate. Other measures are access and quality of health care, income inequality, educational standards and social rights. Examples are: access to certain goods (such as number of refrigerators per 1000 people) measures of health such as life desires It is the ease by which people living in a time or place are able to satisfy their wants. Source: Wikipedia.org

9 How to Calculate Per Capita GDP: Per capita = Real GDP Population

10 Example Problem: Real GDP = 5 Trillion Population = 250 Million Calculate per capita GDP!!!

11 Try some on your own. Calculate the Per Capita GDP for the following problems: 1. Real GDP=6 trillion and Total Population=120 million 2. Real GDP=4 trillion and Total Population=200 million

12 MYSTERY NATIONS: JUST THE FACTS You will be given a description of 5 countries based on its: Continent Size Population Natural Resources Per Capita GDP In your group, examine each description carefully and make an educated guess in which country you think it is describing.

13 Country “A” Size: slightly less than three-tenths the size of the U.S. Population: about million-small for a nation of this size Natural Resources: rich with fertile plains, lead, zinc, tin, copper, iron ore, manganese, oil and uraniun

14 Country “B” Size: slightly smaller than California Population: large population of more than million people Natural Resources: almost no mineral resources; some fish

15 Country “C” Size: slightly more than twice the size of California Population: large population of million Natural Resources: vast resources including oil, tin, iron, ore, coal, limestone, lead, zinc, and natural gas

16 Country “D” Size: slightly more than 3.5 times the size of Washington D.C. Population: slightly larger than 4.4 million- large for such a small nation Natural Resources: fish, deepwater ports

17 Country “E” Size: slightly less than 1.8 times the size of the U.S. Population: million Natural Resources: vast base including major deposits of oil, natural gas, coal, many strategic minerals and timber

18 Per Capita GDP for the U.S. (July 2008: CIA World Fact Book) Per Capita GDP = $46,000 Population = Million The U.S. has the largest and most technologically powerful economy in the world. What does this mean for our standard of living – talk with your partner and provide and example.

19 Top 10 Countries RankCountryPer Capita GDP 1.Luxembourg$80,800 2.Qatar$75,900 3.Bermuda$69,900 4.Jersey$57,000 5.Norway$56,500 6.Kuwait$55,30 7.United Arab Emirates$55,200 8.Singapore$48,900 9.U.S.$46, Ireland$45,600


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