First part of Chapter 12, Section 1. Dealing with Gross Domestic Product

1. BELL RINGER 04.27.2015
Write complete question and answer on your Bell Ringer form.
What did the Great
Depression inspire
economists to do for
the future?

2. ECONOMICS
April 27, 2015
Chapter 12: Gross Domestic Product
and Growth
Section 12.1: Gross Domestic Product

3. NATIONAL INCOME AND
PRODUCT ACCOUNTS
Up until the time of the Great Depression,
economists believed a national economy
would regulate itself.
National income accounting includes stats
on production, income, investment and
savings.
12.1

4. GROSS DOMESTIC PRODUCT
The Gross Domestic Product (GDP)
measures the *dollar value of all *final
goods and services *produced within a
country’s borders in a given year.
For the US GDP, this includes products
made by foreign-owned companies on US
territory.
12.1

5. GROSS DOMESTIC PRODUCT
In the expenditure approach, GDP takes
into consideration expenditures (spending)
on four categories of final goods and
services:
consumer goods and services
business goods and services
government goods and services
net exports or imports of goods
and services
12.1

6. GROSS DOMESTIC PRODUCT
Consumer goods includes durable goods
(ex. refrigerators, cars, and DVD players)
and nondurable goods (ex. food, light bulbs
and sneakers).
12.1

7. GROSS DOMESTIC PRODUCT
Great accuracy in GDP happens when
economists use the income approach,
which adds up all the incomes in the
economy.
This approach acknowledges that all
expenditures can go towards income of
individuals and corporations alike.
12.1

8. GROSS DOMESTIC PRODUCT
Sometimes, adjustments have to be made
to make the expenditure and income
approaches match total figures.
12.1

9. NOMINAL VERSUS REAL GDP
Nominal GDP is measured by current
prices, which can be misleading since it
doesn’t measure actual value.
Real GDP is expressed in constant, or
unchanging, prices. This forces the focus
on actual production of goods and services.
12.1

10. LIMITATIONS OF GDP
GDP does not take into consideration non
market activities, such as the goods and
services people produce and consume
themselves.
GDP also does not measure the
underground economy, which includes
transactions that are never recorded or
reported to the government (drug
transactions, gambling, “cash transactions”).
12.1

11. LIMITATIONS OF GDP
GDP does not reflect the value of side
effects, externalities, that result from certain
expenditures (ex. cleaner environment,
quality of life).
The GDP may predict or measure a
nation’s economy, but it cannot measure
people’s well-being or true happiness.
12.1

12. CHECK QUESTION 12.1
Write complete question and answer on your Bell Ringer form.
Explain the difference between
nominal GDP and real GDP.