UNIT V ECONOMIC INDICATORS: GDP, INFLATION AND UNEMPLOYMENT

PAGE 36 – GROSS DOMESTIC PRODUCT The Components of GDP GDP - market value of final goods, services produced in set time period To be included in GDP, product must be: 1.final, not intermediate 2.produced during the time period, regardless of when sold 3.produced within nation’s borders *Use page 351 – 352 to identify and describe the four components of GDP (one sentence for each).

PAGE 36 – GROSS DOMESTIC PRODUCT Calculating GDP - The Expenditures Approach Consumption - household spending on durable, nondurable goods, services (2/3 of spending) Investment - business spending on capital goods, inventory Government spending - federal, state, local; not transfer payments Net exports - value of exports minus value of imports Look at graph on 351. What does it show you about net exports?

PAGE 36 – GROSS DOMESTIC PRODUCT Two Types of GDP Nominal GDP - price levels for the year in which GDP is measured states GDP in terms of current value of goods and services Real GDP - GDP adjusted for changes in prices estimate of GDP if prices were to remain constant

PAGE 36 – GROSS DOMESTIC PRODUCT Price$4000$40,000 # Produced1000 $4,000,000$40,000,000 Real vs. Nominal Assuming Camaro production was the only component used to calculate our GDP, which type of GDP would you use and why?

NEXT LEVEL QUESTION Questions: 1.Looking at this table, what might you infer about the relationship between GDP and quality of life? 2.Does GDP and quality of life have a negative, positive or no correlation? RankCountry/RegionGDP in millions ($)Year -- European Union16,721, United States16,244, China8,358, Afghanistan20, Uganda19,

GDP REVIEW YearConsumption Expenditure Investment Expenditure Government Expenditure Net Export Expenditure Nominal GDP , , , , , , ,9761,1441, , ,7391,7361, , ,7462,1052, ,487 Components of U.S. GDP (in billions $) 1.What trend can be seen in U.S. nominal GDP? What can you tell from this about the growth of the U.S. economy? Do you need more information? 2.Does the proportion of consumption and the other two positive expenditures remain about the same in the six years shown here? Briefly explain how you estimated this.

PAGE 37 – BUSINESS CYCLES Draw this figure on the top half of page 37. TROUGH PEAK CONTRACTION EXPANSION TIME REAL GDP

PAGE 37 – INFLATION After watching the video, answer the following questions:video 1.What factors influence inflation? Too many dollars in circulation Supply is limited is not a factor that affects inflation! 2.What role does the Federal Reserve play with regards to inflation? Regulates the amount of money in circulation in order to keep inflation low.

PAGE 38 – GDP, BUSINESS CYCLES Please complete #’s 1 – 8 on page 378 to help you review for the Test on Monday.