1. What is GDP?
https://www.youtube.com/watch?v=zh8XASZxo1Q#t=142
Gross Domestic Product (GDP): The dollar amount of all final
goods and services produced within a country’s borders in a year
GDP is the primary indicator used to gauge the health of a
country’s economy
Why are intermediate products and secondhand sales excluded
from GDP?
Intermediate products are used in the creation of final goods
(e.g., tires on a new car) and would be counted twice
Secondhand sales – no new wealth is created
2. What are five factors to take into account when considering
GDP?
1. Delays and revisions make the GDP outdated by months
2. GDP increased!
…because production of weapons increased rather
than production of libraries, hospitals, schools, etc.
GDP decreased!
…because new innovations in manufacturing cut costs
3. Increased production =/= quality of life is better
4. Nonmarket activities – tasks performed around the home
that are not paid for (mowing your own lawn, watching your
own kids)
5. Illegal activities – Underground economy – gambling,
prostitution, drugs, etc.
3. What are two aspects of the economy that the GDP measures?
Economic performance – when the GDP is high, goods and
services are being produced to fill population demands
Economic health – public feels good when GDP is high, can
have political ramifications when GDP is low
4. Gross Domestic Product (GDP) vs Gross National Product (GNP)
GDP – production within the borders of a COUNTRY
GNP – production by the RESIDENTS of a country, regardless
of location
Formal definition of Gross National Product:
Dollar value of all final goods, services, and structures
produced by U.S. citizens
5. What are the four main sectors of the economy?
Consumer sector – made up of households, which include all
persons who occupy a house
Investment sector – made up of businesses, which are
responsible for production
Government sector – local, state, and federal government
spending
Foreign sector – all consumers and producers outside the U.S.
6. (Not in your guided reading)
How might inflation (i.e., a sustained increase in the
price level of goods and services) affect GDP?
If you wanted to track increases in the price level of groceries
over the next 10 years, how might you go about it?
1. What is a price index?
A price index is used to measure changes in prices over time
7. 2. What are the three basic steps in constructing a price index?
a. Choose a base year – This is the year that you’re comparing all
future years to
b. Choose a market basket that is representative of the goods or
services that will be purchased over time
c. Price of each item in market basket is recorded and then
totaled on a yearly basis
8. 3. Examples of three major price indices:
a. Consumer Price Index – 90,000 consumer items in 364
categories
b. Producer Price Index – 3,000 commodities (e.g., farm
products, fuels, chemicals, rubbers, etc.)
9. Vocab, important topics, and big ideas for the test:
Why are intermediate products and secondhand sales not
counted in GDP?
What’s the difference between GDP and GNP?
Nonmarket transactions
Underground economy
Investment sector
Consumer sector
Household & Family (as economic terms)
What are the three steps to create a price index?
Market basket
Consumer Price Index
Be able to describe the four sectors of the economy:
Investment, consumer, government, foreign
