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Economic 
GROWTH Part 2
HOW GDP IS CALCULATED: 
By what is 
produced 
(supplied) 
By what is 
purchased 
(demanded)
HOW GDP IS CALCULATED: 
Measuring GDP by what is produced means adding 
up goods and services in the following categories: 
1. Durable Goods 
2. Non-durable Goods 
3. Services 
4. Structures 
5. Change in Inventories
HOW GDP IS CALCULATED: 
Durable Goods: 
Goods that do not 
quickly wear out, or that 
do not need to be 
replaced often.
HOW GDP IS CALCULATED: 
Non-durable Goods: 
Goods that quickly wear 
out, or that need to be 
replaced often. 
! 
They may be defined 
either as goods that are 
immediately consumed in 
one use or ones that have 
a lifespan of less than 3 
years
HOW GDP IS CALCULATED: 
Services: 
Any intangible commodity. 
Usually, a task a skilled 
laborer performs for 
others.
HOW GDP IS CALCULATED: 
Structures: 
Buildings & monuments. 
! 
Not only is the value of 
newly produced goods 
and services added in to 
total GDP, but the value 
of newly built structures is 
included as well.
HOW GDP IS CALCULATED: 
Change in Inventories: 
Inventories are goods that 
have been produced, but 
not yet sold. They are the 
goods sitting in warehouses 
waiting to be sold. 
! 
“Change in inventories” 
refers to the difference 
between the last period 
inventory was measured, 
and the current period.
COMPONENTS OF GDP 
BY WHAT IS PRODUCED 
Category: 
Percentage of a 
Developed Nation’s 
GDP 
Durable Goods 20% 
Non-durable Goods 20% 
Services 50% 
Structures 10% 
Change in Inventories 1%
HOW GDP IS CALCULATED: 
Measuring GDP by what is demanded means adding 
up goods and services in the following categories: 
1. Consumption 
2. Investment 
3. Government 
4. Exports 
5. Imports (negative)
HOW GDP IS CALCULATED: 
Consumption: 
The value of all goods 
and services purchased 
(or consumed).
HOW GDP IS CALCULATED: 
Investment: 
Purchases of physical 
plants and equipment 
by businesses. 
! 
Owners invest money 
in equipment in order 
to increase factory 
production.
HOW GDP IS CALCULATED: 
Government: 
Money spent by the 
government (that does 
not return to the 
citizens through social 
welfare programs). 
! 
For example, when the 
government buys a new 
air fighter jet, or pays 
government employees 
for their services.
HOW GDP IS CALCULATED: 
Exports: 
Domestically made 
goods that are sold 
abroad. (Example: 
goods made in South 
Korea and sold to 
Thailand). 
! 
We make money 
(increasing GDP) when 
we sell exports.
HOW GDP IS CALCULATED: 
Imports: 
Goods produced in 
other countries that are 
purchased in this 
country. 
! 
Because it costs money 
to purchase imports, 
the value of imports is 
negative, or, subtracted 
from the total GDP.
COMPONENTS OF GDP 
BY WHAT IS DEMANDED 
Category: 
Percentage of a 
Developed Nation’s 
GDP 
Consumption 70% 
Investment 10-20% 
Government 10-20% 
Exports - Imports 0% in trade balance
Why do we want 
economic growth? 
How is economic 
growth created?
SAY “YES” TO ECONOMIC 
GROWTH BECAUSE... 
Historically, economic growth as been the primary vehicle 
for alleviating poverty and raising standards of living. 
Economic growth creates new employment and profit 
opportunities in some industries (but growth reduces 
opportunities in others).
GROWTH = STANDARD OF LIVING 
There is a correlation between and increase in GDP 
and an increase in a country’s standard of living 
(because economic strength is one factor that goes into 
calculating standard of living). 
However, GDP does not specifically tell us about human 
health, environmental health, leisure time, or other 
components of human happiness and well-being.
HOW GROWTH IS CREATED: 
Worker productivity is the key to growth! 
There are four components to economic growth, and 
improving these will cause an increase in growth. 
1 - Population 
2 - Human Capital 
3 - Physical Capital 
4 - Technology
HOW GROWTH IS CREATED: 
More workers, more growth 
1) Population 
If the number of 
workers in a country 
increases, the total 
production and output 
of the country will 
increase.
HOW GROWTH IS CREATED: 
Worker productivity is the key to growth! 
2) Human Capital 
This refers to the skills 
and education of 
workers. If people 
improve their skills and 
education, productivity 
increases.
HOW GROWTH IS CREATED: 
Worker productivity is the key to growth! 
3) Physical Capital 
This refers to factories, 
warehouses, and production 
equipment. If we improve 
this things we use to make 
goods, and workers can be 
more productive.
HOW GROWTH IS CREATED: 
Worker productivity is the key to growth! 
4) Technology 
Technology includes brand new 
inventions that help us work 
more efficiently, but it also 
includes all the advances by 
which people figure out how 
to make existing machines 
produce more or higher quality.

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Growth Part 2

  • 2. HOW GDP IS CALCULATED: By what is produced (supplied) By what is purchased (demanded)
  • 3. HOW GDP IS CALCULATED: Measuring GDP by what is produced means adding up goods and services in the following categories: 1. Durable Goods 2. Non-durable Goods 3. Services 4. Structures 5. Change in Inventories
  • 4. HOW GDP IS CALCULATED: Durable Goods: Goods that do not quickly wear out, or that do not need to be replaced often.
  • 5. HOW GDP IS CALCULATED: Non-durable Goods: Goods that quickly wear out, or that need to be replaced often. ! They may be defined either as goods that are immediately consumed in one use or ones that have a lifespan of less than 3 years
  • 6. HOW GDP IS CALCULATED: Services: Any intangible commodity. Usually, a task a skilled laborer performs for others.
  • 7. HOW GDP IS CALCULATED: Structures: Buildings & monuments. ! Not only is the value of newly produced goods and services added in to total GDP, but the value of newly built structures is included as well.
  • 8. HOW GDP IS CALCULATED: Change in Inventories: Inventories are goods that have been produced, but not yet sold. They are the goods sitting in warehouses waiting to be sold. ! “Change in inventories” refers to the difference between the last period inventory was measured, and the current period.
  • 9. COMPONENTS OF GDP BY WHAT IS PRODUCED Category: Percentage of a Developed Nation’s GDP Durable Goods 20% Non-durable Goods 20% Services 50% Structures 10% Change in Inventories 1%
  • 10. HOW GDP IS CALCULATED: Measuring GDP by what is demanded means adding up goods and services in the following categories: 1. Consumption 2. Investment 3. Government 4. Exports 5. Imports (negative)
  • 11. HOW GDP IS CALCULATED: Consumption: The value of all goods and services purchased (or consumed).
  • 12. HOW GDP IS CALCULATED: Investment: Purchases of physical plants and equipment by businesses. ! Owners invest money in equipment in order to increase factory production.
  • 13. HOW GDP IS CALCULATED: Government: Money spent by the government (that does not return to the citizens through social welfare programs). ! For example, when the government buys a new air fighter jet, or pays government employees for their services.
  • 14. HOW GDP IS CALCULATED: Exports: Domestically made goods that are sold abroad. (Example: goods made in South Korea and sold to Thailand). ! We make money (increasing GDP) when we sell exports.
  • 15. HOW GDP IS CALCULATED: Imports: Goods produced in other countries that are purchased in this country. ! Because it costs money to purchase imports, the value of imports is negative, or, subtracted from the total GDP.
  • 16. COMPONENTS OF GDP BY WHAT IS DEMANDED Category: Percentage of a Developed Nation’s GDP Consumption 70% Investment 10-20% Government 10-20% Exports - Imports 0% in trade balance
  • 17. Why do we want economic growth? How is economic growth created?
  • 18. SAY “YES” TO ECONOMIC GROWTH BECAUSE... Historically, economic growth as been the primary vehicle for alleviating poverty and raising standards of living. Economic growth creates new employment and profit opportunities in some industries (but growth reduces opportunities in others).
  • 19. GROWTH = STANDARD OF LIVING There is a correlation between and increase in GDP and an increase in a country’s standard of living (because economic strength is one factor that goes into calculating standard of living). However, GDP does not specifically tell us about human health, environmental health, leisure time, or other components of human happiness and well-being.
  • 20. HOW GROWTH IS CREATED: Worker productivity is the key to growth! There are four components to economic growth, and improving these will cause an increase in growth. 1 - Population 2 - Human Capital 3 - Physical Capital 4 - Technology
  • 21. HOW GROWTH IS CREATED: More workers, more growth 1) Population If the number of workers in a country increases, the total production and output of the country will increase.
  • 22. HOW GROWTH IS CREATED: Worker productivity is the key to growth! 2) Human Capital This refers to the skills and education of workers. If people improve their skills and education, productivity increases.
  • 23. HOW GROWTH IS CREATED: Worker productivity is the key to growth! 3) Physical Capital This refers to factories, warehouses, and production equipment. If we improve this things we use to make goods, and workers can be more productive.
  • 24. HOW GROWTH IS CREATED: Worker productivity is the key to growth! 4) Technology Technology includes brand new inventions that help us work more efficiently, but it also includes all the advances by which people figure out how to make existing machines produce more or higher quality.