1. The US Economy: A Global View
Ch. 2

2. 3 Basic Economic Questions
What to produce
How to produce
For Whom to produce
American answers frequently differ

3. What to Produce?

4. WHAT? = GDP GDP GDP per Capita Gross domestic product
The total market value of all goods & services produced in a country’s borders in a given period
GDP per Capita
GDP/total population
Can be a stand in for “standard of living”
LIMITATIONS—a statistical average, very general

5. Comparing GDP Growth: Why would this matter? GrowthUS
Developing World
Growth:
+WWII average 3%/yr
Outpaced population growth
Why would this matter?
Growth
Frequently GDP<population
Why would this matter?

6. GDP Mix Output here is reversed Focus=Agriculture, Basic Needs
Developing World
Output here is reversed
Focus=Agriculture, Basic Needs
Example?
US GDP Spending Mix
Consumption: 70%
Investment: 17%
Government: 19%
Net Exports: -6% (US imports from the world exceed exports)
How much?

7. How to Produce?

8. Supports to US Productivity
Human Capital (education)
Physical Capital Intensity (machinery available)
Other Factors
Rapid technology (focus on R & D)
Factor mobility
Trade
Back to the Factbook

9. Trade! It is good for you Comparative Advantage: Why it matters?
The ability of a country to produce a good at LOWER opportunity cost than its trading partners
Why it matters?
International trade allows countries to EXPORT what they do best and IMPORT goods they do not produce as efficiently.
OVERALL INTERNATIONAL TRADE INCREASES WORLD OUTPUT AND IMPROVES LIVING STANDARDS

10. For whom to produce?

11. Who gets what & how much? Market Mechanism: Income QuintileUS
Developing World
Market Mechanism:
Prices decide
Personal income shapes consumption
Income Quintile
How much income each 1/5 of population has
Top 10% has 30% of income
Bottom 20% has 3.4%
Higher levels of income inequality
Less Social/Income Mobility
Top 10% in Sierra Leone has 45% of income