Agenda Tues 3/15 & Weds 3/16 Stock Game Updates

QOD # 23: What Counts

GDP

Homework P. 316 # 1-6 & p 373 #1-6

Printout #2 DUE: 3/21

QOD #23: What Counts President Obama 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 Obama 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

GNP v GDP GDP is discussed when economists, government officials,

and member of the public talk about overall performance of the economy.

GNP measures the total market value of final goods and services produced by U.S. citizens wherever they reside.

GDP is the total market value of final goods and services produced within the borders of the U.S. by US citizens and noncitizens.

GNP ≠ GDP

Measuring GDP 4 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

2009 List

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.

Energy dropped a stunning 16.9% while transportation dropped 9.7% in November 2008.

January 2009 1st increases since July 2008

U.S. GDP Gross Domestic Product Past Trend Present Value & Future Projection Billion US Dollars. Annual Rate Seasonally Adjusted.

GDP in the US For the third straight year, 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.

Projections for 2020

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

Current news 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:

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 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

References

Arnold, R (2001). Economics in our times, 2nd edition.

Chicago, IL: National Textbook Company . http://www.international.gc.ca/eet/trade/sot_2008/sot-2008-en.asp

http://www.mybudget360.com/wp-content/uploads/2008/08/gdp.jpg

http://mwhodges.home.att.net/nat-debt/debt-nat-b.htm