Agenda Thurs 3/16 & Fri 3/17●Final Project Review (MAD/Stock)●QOD # 23: What Counts●GDP●Homework

● P. 316 # 1-6 & p 373 #1-6● Team Project Unit #2 DUE: 3/20● Self-Assessment Rubric & Write-up DUE

3/20

QOD #23: What Counts● President Trump has given you the task of figuring out how

much the American economy produces in a year. ● How would you go about doing this?

● Do you count production from foreign firms in America and/or American firms producing in other countries?

● Do you count every item produced or use a statistically significant sample?

● Pick a list of things and estimate based off that ● Would not result in accidental results but truly representative of

the population● Is the answer for Trump based on the number (#) of goods produced

or the dollar ($) amount of these goods?● Why is it important to know this information?

Measuring Economic Performance● Gross Domestic Product (GDP): is the total

market value of all final goods and services produced annually in an economy.

● To calculate the GDP: ● # of good × price, then add dollar amounts

(100 × $60) + (1,000 × $3) + (1,000 × $4) = $13,000 (GDP)

What Counts?● GDP counts only final goods to avoid double counting.

Why Final Goods?● A final good is a good sold to its final user.● Ex: When you buy a hamburger at a restaurant, the

hamburger is a final good. You are a final user.● Intermediate good is not counted in the GDP.● When computing GDP, economists count only final goods

and services.● When economists count both final and intermediate goods

they would be double- counting.

What GDP omits:● Illegal goods and services● Legal goods and services for which there is no

record● Some non-market goods and services● Sales of used goods● Stock and other financial transactions● Government transfer payments

Measuring GDP4 parts

● Consumption (households) [Market basket = CPI]● Clothes, cars, food

● Investment (businesses)● Tools, machines, factories

● Government (government)● Office supplies, tanks, weapons

● Export (goods bought by foreigners outside of the country)● Cars, wheat

● Import (goods bought by Americans from other countries)● Computers, cars, electronics

GDP = C + I + G + EX - IMP

Is Every Good That Is Produced Also Sold?

● Yes, the government statisticians who measure GDP assume that everything that is produced is purchased by someone

GDP v. Quality of Life

Per capita GDP = __GDP__

population

Consumer Price Index● The consumer price index (CPI) is a measure of the average

price of goods purchased by a household ● It measures the average ‘market basket of goods’ of the

urban consumer● The most widely cited price index.

U.S. GDP Gross Domestic ProductPast Trend Present Value & Future ProjectionBillion US Dollars. Annual Rate Seasonally Adjusted.

Case Study #1 of GDP in the US● The pace of economic activity in the U.S. economy slowed

as real gross domestic product (GDP) grew by 2.2 percent in 2007 compared to 2.9 percent a year earlier and 3.1 percent the year before that.

● Real growth in the economy weakened sharply in the fourth quarter as the economy expanded by only 0.6 percent at an annualized rate.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Case study #1 (cont.)● At the end of 2008, the CPI fell three months in a row.● In January 2009, it increased by .3%.● The largest single month jump ever recorded (in 61

years) was in November at -1.7%.● This was a concern because deflation was a hallmark of

the depression. Normally lower prices, especially gas prices makes us happy.

● Things the government chose to do at that time:● lower the mortgage rates for homes● Bail out programs (Fed money to state govt & private

business).● Government subsidies to get people to work● Did it work? Is it still working?

American Debt Case Study #2● Americans are at the end of the rope with debt. ● $13.8 trillion in household debt outstanding in 2008, up

$2 Trillion since 2005.● Of the $13.8 trillion, $10.5 trillion was for mortgages and

most of the balance for credit purchases.● Will we have as much household debt as our annual GDP?

● 2008 GDP = $14.3 trillion, estimated● GDP is contracting (slowing) so it may be the case that

there will be more debt than actual GDP. ● Household debt decreased for the 1st time in 3rd quarter of

2008