chapter 12.1 a
TRANSCRIPT
BELL RINGER 04.27.2015Write complete question and answer on your Bell Ringer form.
What did the Great Depression inspire economists to do for the future?
ECONOMICSApril 27, 2015
Chapter 12: Gross Domestic Product and Growth
Section 12.1: Gross Domestic Product
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.
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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.
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GROSS DOMESTIC PRODUCT
In the expenditure approach, GDP takes into consideration expenditures (spending) on four categories of final goods and services:
consumer goods and servicesbusiness goods and servicesgovernment goods and servicesnet exports or imports of goods and services
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GROSS DOMESTIC PRODUCT
Consumer goods includes durable goods (ex. refrigerators, cars, and DVD players) and nondurable goods (ex. food, light bulbs and sneakers).
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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.
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GROSS DOMESTIC PRODUCT
Sometimes, adjustments have to be made to make the expenditure and income approaches match total figures.
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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.
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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”).
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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.
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