Download - Activator GDP Chapter 12
Activator – GDP Chapter 12 * Create a chart and predict a figure for each of the following
Trend 1900-1920 2011
Prediction Actual Figure Prediction Actual Figure
Average Life Expectancy (years)
Per Capita Income
Poverty Rate (percent of US Households)
High School Completion (percent of adults)
47
$520 (5609.15 in
today’s dollars)
40%
22%
78.37
$48,147
15.1% (46.2 million)
92%
Chapter 12 – Gross Domestic Product and Growth •Macroeconomics – the study of the behavior and decision making of the economy as a whole.
•i.e. – inflation, unemployment, and economic growth
•Gross Domestic Product (GDP) – the total market value of all final goods and services produced within a country’s borders in a given period of time.
•Measures the economy’s total income
•Total income = total expenditure
Gross Domestic Product Defined •“Market Dollar Value…” – prices of goods and services
• F150 - $35,000, Apple $1.00
Gross Domestic Product Defined •“…Of All…” – all items produced in the economy and sold legally in commercial markets.
• Pears, grapefruit, books, movies, etc.
Gross Domestic Product Defined •“…Final…” – only value of final goods and services (excluding intermediate products).
• Included – Cheeseburger(output)
• Excluded – Cow parts (inputs)
Gross Domestic Product Defined •“…Goods and Services…” – Tangible and intangible products
• Hair products and haircuts
Gross Domestic Product Defined • “…Produced…” – only includes new goods and services produced currently.
• Included - New car
• Excluded - used car
Gross Domestic Product Defined •“…Within a country…” – only measures production within a country’s borders.
• Counted - Japanese company in the U.S.
•Not Counted - Am. Company in Japan
Gross Domestic Product Defined •“… In a given period of time…” – measured within a specific interval of time,
• Usually a year or quarter (three months)
Components of GDP
Consumption Investment Government Net Exports
Four components:
GDP (Y) = C + I + G + NX
1. C - Consumption of goods and services by households (Consumer Spending)
◦ Accounts for 70% of GDP
2. I - Investments by businesses in goods and services (Business Spending)
◦ Accounts for 15% of GDP *New-home construction considered I*
3. G - Government goods and services (Government Spending)
◦ Accounts for 20% of GDP
4. NX - Net exports or imports of goods and services, (Foreign Spending) *Exports (X) – Imports (M)*
◦ Accounts for -5 of GDP
2011 GDP was approximately 15 Trillion
Application - Calculating GDP Product Quantity Price (per 1 unit) Dollar Value
Consumption Car Sales Fast Food Sales Personal Computers
10 12
50
$400
$200
$100
____________________________ ____________________________ ____________________________
Investment Tractors Business Computers Telecommunications
15 10
45
$20
$30
$200
____________________________ ____________________________ ___________________________
Government Military Personnel Helicopters Roads
5
2
1
$50,000
$200,000
$300,000
__________________________ __________________________ __________________________
Net Exports *Figure this amount by taking Exports minus Imports*
Total Exports
Total Imports
$10,000
$20,000
__________________________
Total Gross Domestic Product = _______________________________
4000 2400
5000
300 300
9000
250000 400000
300000
-10000
$961,000
Excluded from GDP • Intermediate products - inputs used to produce final goods and services; excludes double counting
•The tires that come with the car is not counted as a final good
•However if you get a flat and buy the same tire it is counted as a final good
Excluded from GDP •Second-hand sales - refer to the sales of used goods.
Excluded from GDP • Nonmarket Transactions/Underground Economy – transactions that do not take place in the legal marketplace (i.e. fixing your car, mowing your lawn, babysitting, etc.)
Excluded Products from GDP •Black Market– illegal activities, gambling, drugs, prostitution, smuggling, etc.
Excluded from GDP •Transfer Payments– redistribution of money from tax-payers to some entitled group, i.e. Social Security, welfare, unemployment checks, etc.
GDP Poster Project Poster Requirements: 1. Title - Gross Domestic Product 2. Definition of GDP 3. At least 1 picture to represent each
of the components of GDP. 4. At least 1 picture to represent each
of the excluded components of GDP 5. Label, describe and summarize each
picture
Components of GDP:
1. Consumption
2. Government
3. Investment
4. Net Exports (export and import)
Excluded:
1. Intermediate products
2. Second-hand sales
3. Nonmarket Transactions
4. Underground Economy
5. Cash Transfers
Daily Assignment Questions – Page 302 Housing Market – GDP
Important Point: Housing is listed under the Investment category, not Consumption
1. When was the house counted towards GDP?
2. Why was it not counted when it was sold this year?
3. What can be counted towards GDP that was a service provided as a result of the sale of the house?
4. What were the lumber, nails, shingles, windows and other items used to build your neighbors newly built house categorized as?
5. What would be added to GDP?
Review – Components of GDP Indicate the components of GDP that each of
the following transactions falls under.
1. A family buys a new refrigerator.
2. Ford opens a new plant in Detroit,
Michigan.
3. Glynn County builds a new middle
school.
4. China imports commodities from the
United States.
What exclusionary components are affected
by the following transactions?
5. A garage sale in your neighborhood.
6. The tires, bolts, and engine for a new
automobile.
7. The illegal sale of imitation purses.
8. Mowing your lawn every other
Saturday and being paid an
allowance.
9. Checks sent to Social Security
recipients
GDP Simulation Year Price Quantity Sold Total GDP
Nominal Versus Real GDP
Year 1 Nominal GDP Year 2 Nominal GDP Year 2 Real GDP
1. Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
+ 10 trucks at $20,000 each =
Total =
Nominal GDP – GDP measured in name only (current prices), not adjusted for inflation.
Real GDP – GDP expressed in fixed (unchanging prices), adjusted for inflation.
Nominal Versus Real GDP
Year 1 Nominal GDP Year 2 Nominal GDP Year 2 Real GDP
1. Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000
Nominal GDP – GDP measured in name only (current prices), not adjusted for inflation.
Real GDP – GDP expressed in fixed (unchanging prices), adjusted for inflation.
Nominal Versus Real GDP
Year 1 Nominal GDP Year 2 Nominal GDP Year 2 Real GDP
1. Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000
1. In the second year, the
economy’s output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
+ 10 trucks at $21,000 each =
Total =
Nominal GDP – GDP measured in name only (current prices), not adjusted for inflation.
Real GDP – GDP expressed in fixed (unchanging prices), adjusted for inflation.
Nominal Versus Real GDP
Year 1 Nominal GDP Year 2 Nominal GDP Year 2 Real GDP
1. Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000
1. In the second year, the
economy’s output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
$160,000
+ 10 trucks at $21,000 each =
$210,000
Total = $370,000
Nominal GDP – GDP measured in name only (current prices), not adjusted for inflation.
Real GDP – GDP expressed in fixed (unchanging prices), adjusted for inflation.
Nominal Versus Real GDP
Year 1 Nominal GDP Year 2 Nominal GDP Year 2 Real GDP
1. Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000
1. In the second year, the
economy’s output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
$160,000
+ 10 trucks at $21,000 each =
$210,000
Total = $370,000
1. To correct for an increase in
prices, economists establish a
set of constant prices by
choosing one year as a base
year. :
10 cars at $15,000 each =
+ 10 trucks at $20,000 each =
Total =
Nominal GDP – GDP measured in name only (current prices), not adjusted for inflation.
Real GDP – GDP expressed in fixed (unchanging prices), adjusted for inflation.
Nominal Versus Real GDP
Year 1 Nominal GDP Year 2 Nominal GDP Year 2 Real GDP
1. Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000
1. In the second year, the
economy’s output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
$160,000
+ 10 trucks at $21,000 each =
$210,000
Total = $370,000
1. To correct for an increase in
prices, economists establish a
set of constant prices by
choosing one year as a base
year. :
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000
Nominal GDP – GDP measured in name only (current prices), not adjusted for inflation.
Real GDP – GDP expressed in fixed (unchanging prices), adjusted for inflation.
GDP Deflator
Year 2 Nominal GDP – $370,000
Year 2 Real GDP - $350,000
•Calculate the increase in prices based on the
GDP
•Deflator formula
•GDP deflator = Nominal GDP/Real GDP × 100
_____________× 100 =
_____rise in inflation
370,000
350,000 106
6%
Nominal GDP Versus Real GDP (RGDP)
$8 $9 $10 $11
1990 1995 2000 2012
•Nominal GDP is the Price
•RGDP is the Pizza Pie
(physical units sold)
Year Price Units
Sold
Nomina
l GDP
Real
GDP
1990 $8 10 $80 $80
2012 $11 10 $110 $80
Nominal GDP Versus Real GDP (RGDP)
$8 $9 $10 $11
1990 1995 2000 2012
•Nominal GDP is the Price
•RGDP is the Pizza Pie
(physical units sold)
Year Price Units
Sold
Nomina
l GDP
Real
GDP
1990 $8 10
2012 $11 10
Inflation and Inflation Rate Inflation – inflation is a rise in the general level of prices of goods and services in
an economy over a period of time.
Inflation Rate - percentage change in some measure of the price level from one period to the next.
GDP Deflator – an index that converts output measured at current prices into constant-dollar GDP.
◦ The GDP deflator shows inflation, how much a change in the base year's GDP relies upon changes in the price level.
Inflation Rate = GDP Deflator in year 2 – GDP Deflator in year 1 GDP Deflator in year 1
GDP Prices and Quantities
Year Price of Hot Dogs Quantity of Hot Dogs Price of Hamburgers Quantity of Hamburgers
2005
2006
2007
$1
$2
$3
100
150
200
$2
$3
$4
50
100
150
Calculating Nominal GDP
2005
2006
2007
________ per hot dog ×________ hot dogs = ____
________ per hot dog ×________ hot dogs = ____
________ per hot dog ×________ hot dogs = ____
_____ per hamburger ×____ hamburger = ____
_____ per hamburger ×____ hamburger = ____
_____ per hamburger ×____ hamburger = ____
2005
2006
2007
Total Market Value for Hot Dogs _______ + Total Market Value for Hamburgers _______ = __________
Total Market Value for Hot Dogs _______ + Total Market Value for Hamburgers _______ = __________
Total Market Value for Hot Dogs _______ + Total Market Value for Hamburgers _______ = __________
Calculating Real GDP (base year 2005)
2005
2006
2007
______ per hot dog ×______ hot dogs = _______
______ per hot dog ×_______ hot dogs = ______
______ per hot dog ×_______ hot dogs = ______
______ per hamburger ×______ hamburger = ____
______ per hamburger ×_____ hamburger = ____
______ per hamburger ×_____ hamburger = ____
2005
2006
2007
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = __________
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = ___________
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = __________
Calculate the increase in prices based on the GDP Deflator formula
GDP deflator = Nominal GDP × 100
Real GDP
2005
2006
2007
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
$1 100 $100 $2 50 $100 $2 150 $300 $3 100 $300
$3 200 $600 $4 150 $600
$100 $100 $300 $300
$600 $600
$200 $600
$1200
$1 100 $100 $2 50 $100
$1
$1
150
200
$150
$200
$2
$2
100
150
$200
$300
$100
$150
$200
$100
$200
$300
$200
$350
$500
$200 $200 100
$600 $350 171
$1200 $500 240
Year 1: Apricots - Broccoli - Carrots - Total GDP -
Year 2: Apricots - Broccoli - Carrots - Total GDP -
Calculating GDP 1. Calculate the GDP deflator using the following figures:
• Real GDP 2008 ($13.7 trillion)
• Nominal GDP 2008 ($14.6 trillion) using the following formula: Nominal GDP X 100 = Real GDP
__14.6 = _______X 100 = _____ 13.7
1.065 107
PRODUCTION AND PRICES
YEAR 1 YEAR 2
GOODS OUTPUT PRICES OUTPUT PRICES
APRICOTS 10 $50 10 $55
BROCCOLI 10 $25 12 $25
CARROTS 10 $25 9 $30
2. Calculate the nominal GDP for each year, then calculate the GDP deflator for year 2 using year 1 as a base year.
Year 2 Real GDP: Apricots - $500 Broccoli - $300 Carrots - $225 Total GDP - $1025
Year 2Nominal: Apricots - $550 Broccoli - $300 Carrots - $270 Total GDP - $1120
__1120 = _______X 100 = _____ 1025
1.09 109 = 9% inflation Nominal GDP X 100 = Real GDP
• Business Cycle – economy-wide fluctuations in a market or economy over several months or years.
1. Expansion – period of economic growth as measured by GDP
2. Peak – When real GDP stops rising
3. Contraction – economic decline marked by falling real GDP
• Rise in unemployment
4. Trough – “bottomed out”, economy reaches its lowest point, real GDP stops falling
• Recovery - A return to a normal state of the economy, where the economy begins to show signs of health "signs of recovery in the housing market“.
Business Cycles
Recession Recession – a prolonged
economic contraction
Real GDP falls for two
consecutive quarters
(6 straight months)
Rise in unemployment, falling
profits, bankruptcies,
foreclosures, etc.
GDP
Depression A long and severe
recession (8 quarters of
declining real GDP)
Severely high
unemployment and low
output
Stagflation Combines two words, stagnant and inflation, is a
decline in real GDP combined with a rise in price
level
Four Main Economic Variables 1. Business Investment –
investing in physical capital (plants and equipment)
2. Interest Rates and Credit – the cost of borrowing, added to the principal investment
3. Consumer Expectations – fears of a weakening economy can cause consumer confidence to fall, cut back on spending
4. External Shocks – conditions in society that affect normal economic activity
• Oil spill in the gulf, severe drought, hurricanes, etc.
Section 2 Daily Assignment Questions pgs. 312 – 316 1. How does businesses investment affect
GDP?
2. What happens when firms cut back on
investment spending?
3. How does reduced investment affect
industries that produce capital goods?
4. What do consumers in the U.S. use credit to
purchase; what is the cost of credit?
5. How do high interest rates affect consumption
and business investment?
6. How did high interest rates affect the
economy in 1980?
7. What happened to unemployment as a result
of the recession?
8. How does a fear of a weakened economy
affect spending?
9. What effect does reduced spending have on
the economy?
10. How was this evident in the spring of 2003?
11. What happens when consumer confidence
rises?
Percentage Change in Real GDP 1. Calculate the percentage change in
Real GDP from July 2009 ($13.7 trillion) to March 2010 ($14.2 trillion) using the following formula: New number – Original X 100 = Original
14.2 – 13.7 = _______X 100 = _______ 13.7
0.0365 3.65%
2. Calculate Real Per Capita GDP by using the following formula: Real GDP 2009 Total Pop. 2009 *2009 Real GDP – $13,700,000,000,000 *2009 Total Pop. – 304,500,000
= _$44,991_ 137000 3.045
Economic Growth •Economic Growth – sustained increases in an economy’s real GDP
•Real GDP per capita – real GDP divided by the total population
• Per Capita – “for each person”
• Average income for each person in a country
• Considered the best measure of a nation’s standard of living.
GDP and Quality of Life •Nations with higher per capita GDP enjoy higher quality of life, such as:
•Better Nutrition
•Comfortable housing
•Longer life spans
•Better education
•Infrastructure/Telecommunications (cable, internet, phone lines, etc.)
Productivity and Economic Growth Productivity – the amount of goods and services produced for each unit of
labor input
◦ High productivity leads to high per capita real GDP = high standard of
living
Growth rate - how rapidly real GDP per person grows in a typical year
◦ U.S. real GDP per capita $3,752 in 1870 and $44,260 in 2006; 1.83%
growth rate per year
Improving Productivity and Economic Growth •Capital deepening – process of increasing the amount of capital per worker (labor productivity)
•Increase investments in physical capital and human capital
◦ Saving and Investment - a society can change the amount of capital
it has through S&I
◦ Every dollar saved is a dollar made available for investing
Invest in capital today will raise future productivity tomorrow
(capital deepening)
Saving and Investment
Technological Progress •Technological progress – producing more output without using more inputs
• Technological Knowledge – understanding how to make the best use of available resources
Population and Government •Population Growth – can affect productivity and economic growth
•Ex. India, large population and low productivity, equals low wages and quality of life
•Ex. United States, consistent population growth, high capital growth, leads to high quality of life
•Government – government policies can affect a nation’s economic growth
• Increased taxes, reduces disposable income which takes money away from private investing
◦ Natural resources - inputs provided by nature that are converted into the
production of goods and services
Provided by nature, such as land, rivers, and mineral deposits
U.S. large supply of land and agriculture, Middle East oil supplies
◦ Renewable Resources - are natural resources that can be reproduced.
Forest, wood, paper, energy (wind, solar power), etc.
◦ Nonrenewable Resources - are natural resources that are limited in
supply.
Coal, gold, oil, etc.
47
Natural Resources
Essential Question #1 What are the 4 components of GDP?
◦ C – Consumption
◦ I – Investment
◦ G – Government
◦ NX – Net Exports
Essential Question #2 What are the excluded components of GDP?
◦ Intermediate Products
◦ Second-Hand Sales
◦ Non-Market Transactions
◦ Underground Economy (Black Market)
◦ Cash Transfers
Essential Question #3 How do you calculate Real GDP and Nominal GDP?
◦ Nominal is calculated using current _________(________), not
accounting for_____________
◦ Real is calculated using a _________ year’s prices (dollars),
accounting for__________, keeping price_____________.
Essential Question #4 What are the characteristics of the 4 phases of the business cycle?
◦ Peak – GDP has reached its highest point
◦ Contraction – GDP begins to decline (recession)
◦ Trough – GDP has reached its lowest point
◦ Expansion – GDP begins to rise again
prices dollars
inflation
base
inflation constant
Essential Question #3 What does per capita GDP measure; what does it indicate about a
society’s standard of living?
◦ Average income for each person.
◦ Higher the per capita GDP, the higher the standard of living.
Essential Question #4 How can a country improve its standard of living/per capita GDP??
◦ Productivity, saving and investing, technology, natural resources,
population control and stable government
Bananas and Backrubs –Online Quiz
1. Calculate the nominal GDP for each year, then calculate the GDP deflator for each year using year 1 as a base year.
Year 1: Bananas - Backrubs - Total GDP -
Year 2: Bananas - Backrubs - Total GDP -
Year 1: Bananas - $5 Backrubs - $30 Total GDP - $35
Year 3: Bananas - Backrubs - Total GDP -
Year 2: Bananas - $10 Backrubs - $42 Total GDP - $52
Year 3: Bananas - $20 Backrubs - $54 Total GDP - $74
VIS Terms Due Tuesday 10 –27 1. Macroeconomics
2. Gross Domestic Product
3. Nominal GDP
4. Real GDP
5. Expansion
6. Peak
7. Contraction
8. Trough
9. Recession
10. Depression
11. Stagflation
Binder Check Due Tuesday 10-25 1. Daily Assignment Ch. 12 Sec. 1
2. Video Questions - Google
3. DAQ’s pg. 302
4. Ch. 12 Guided Reading Wksht.
5. Population Growth + GDP Wksht.
6. Section 2 DAQ’s pgs. 312-316
7. Study Guide Chapter 12
8. C.W. Puzzle Ch. 12
9. VIS Terms Ch. 12
GDP Country Comparison
Use the first table to fill in the information, including population. 1. Describe how population might affect GDP. 2. What does Per Capita GDP tell you about a country's economy and standard of living? 4. Based on the table above, which country has the highest standard of living? The lowest? 5. Why are the citizens of the countries with high Per Capita GDP more likely to have a better quality of life than other countries?
Country 2011 GDP Population Per Capita GDP Population Rank Per Capita GDP
Rank
USA $14,582,000,000,000 307,007,000
China $5,879,000,000,000 1,338,000,000
Japan $5,498,000,000,000 127,000,000
Germany $3,286,000,000,000 82,372,000
France $2,562,000,000,000 64,800,000
UK $2,250,000,000,000 62,970,000
Brazil $2,090,000,000,000 195,000,000
Mexico $1,634,000,000,000 113,550,000
Russia $1,479,000,000,000 142,860,000
Canada $1,474,000,000,000 33,680,000
Practice Ch. 12
a. Consumption
b. No, because that transaction is a cash transfer,
not a purchase of currently produced capital
goods.
c. It means that imports exceed exports.
Practice Ch. 12
a. 100, 200, 400
b. 100, 100, 100
Practice Ch. 12
a. 700 (1.00 x 200 = 200) + (10.00 x 50 = 500) = 700
b. 700 (1.00 x 200 = 200) + (10.00 x 50 = 500) = 700
c. 770 (1.00 x 220 = 220) + (11.00 x 50 = 550) = 770
d. 720 (1.00 x 220 = 220) + (10.00 x 50 = 500) = 720
e. 100 (700/700 x 100 = 100)
f. 107 (770/720 = 1.069 x 100 = 107)
g. 107 – 100/100 = .07 x 100 = 7%
h. 770 – 700/700 = .10 = 10%, Percent increase in prices
= 7%, therefore most of the increase was due to
prices.
Practice Ch. 12
a. Year 1, because the deflator = 100.
b. Prices rose 20 percent and real output stayed
the same.
c. Prices stayed the same and real output rose 25
percent.
Application - Calculating GDP Product Quantity Price (per 1 unit) Dollar Value
Consumption Automobiles Replacement Tires Shoes
6 10 55
$20000
$60
$50
_______________________________ _______________________________ _______________________________
Investment Machinery Computers Cell Phones
10 30 45
$8000
$1500
$200
____________________________ ___________________________ ___________________________
Government Single Family Multifamily Commercial
3 5 1
$75,000
$300,000
$1,000,000
_________________________ _________________________ _________________________
Net Exports *Figure this amount by taking Exports minus Imports*
Total Exports $10,000
Total Imports $20,000
___________ - __________
= ___________
_________________________
Total Gross Domestic Product = _______________________________
Extra Credit 1. The country of Terrorville produces two goods: footballs and basketballs. The following is a table showing the prices and quantities of output for three years.
2. What percentage of real GDP comes from consumption?
Study Guide Ch. 12 1. Macroeconomics
2. Gross Domestic Product
3. A system of statistics and accounts that keeps track of production,
consumption, saving and investment.
4. C – spending by consumers
I – spending by businesses ,
G – spending by government,
NX – spending by foreigners, minus imports
5. “Market Dollar Value…” – market selling prices of goods and
services.
“…Final goods and services” – only value of final goods and
services (excluding intermediate products).
“…Within a country’s borders…” – only measures production
within a country’s borders.
6. Intermediate products, which are inputs used to produce final goods
and services.
Second-hand sales - refer to the sales of used goods.
Nonmarket Transactions – transactions that do not take place in the
marketplace (i.e. fixing your car, mowing your lawn, etc.)
Underground Economy – illegal activities, gambling, drugs,
prostitution, smuggling, etc.
Study Guide Ch. 12 7. GDP:
a. Second-hand sale
b. Government
c. Investment
d. Nonmarket Transaction
e. Underground Economy
f. Consumption
g. Net Exports
h. Intermediate goods
8. Product Quantity Price (per 1 unit) Dollar Value Consumption New home sales
Fast Food Sales Personal Computers
10 12
50
$200,000
$10,000
$1,000
_________2,000,000___________________ _________120,000___________________ _________50000___________________
Investment Tractors Plane Tickets Blackberry Phones
15 10
45
$10,000
$90
$400
__________150,000__________________ __________900__________________ __________18,000_________________
Government Garbage Collection
Newly Hired Agents Police
50
500
100
$5,000
$60,000
$50,000
__________250,000________________ __________30,000,000________________ __________5,000,000________________
Net Exports *Figure this amount by taking Exports minus Imports*
Total Exports $10,000
Total Imports $20,000
____10000_______ - ___20000_______
= ____-10000_______
_________-10000_________________
Total Gross Domestic Product = __________$37,578,900_____________________
Study Guide Ch. 12
9. Expansion
10. Peak
11. Contraction
12. Trough
13. Recession
14. Depression
15. Stagflation
16. Phase of Business Cycle: a. Contraction
b. Peak
c. Trough
d. Expansion
Contributing Factors Example of increase in GDP Example of decrease in GDP
Business Investment During an expansionary economy,
firms invest in capital goods, this will
help create output and jobs, increase
GDP
During acontractionary economy, firms
invest in capital goods, this will help
create output and jobs, increase GDP
Interest Rates and
Credit
If interest rates are low, people and
businesses will be motivated to
borrow, consume and invest
If interest rates are high, people and
businesses will be lose the motivation to
borrow, consume and invest
Consumer Expectations The way that people perceive the
economy can influence consumption,
if they view it positively they will
consume and this will add to GDP
The way that people perceive the
economy can influence consumption, if
they view it negatively they will consume
and this will add to GDP
External Shocks Positive external shocks such finding
a new oil source or if an area
experiences a great deal of rain
Negative external shocks such as war,
hurricanes, droughts etc. can influence
ability to consume and invest
Study Guide Ch. 12 17.
18.
Prices and Quantities
Year Price of Oranges Quantity of Oranges Price of Video Games
Quantity of Video Games
2005 2006 2007
$1
$2
$3
50
100
150
$10
$15
$20
5
10
15
Calculating Nominal GDP
2005 2006 2007
$__1__ per orange ×___50___ oranges = $__50_____ $__2__ per orange ×___100___ oranges = $__200___ $__3___ per orange ×__150___ oranges =$ __450___
$__10__ per video game ×__5____ video games =$__50_____ $__15__ per video game ×__10___ video games =$__150____ $__20__ per video game ×__15___ video games =$__300___
2005 2006 2007
Total Market Value for Oranges $___50_____ + Total Market Value for Video Games $ ___50_____ = $____100_____ Total Market Value for Oranges $___200____ + Total Market Value for Video Games $ ___150____ = $____350____ Total Market Value for Oranges $___450____ + Total Market Value for Video Games $ ___300____ = $____750____
Calculating Real GDP (base year 2005 prices)
2005 2006 2007
$__1__ per orange ×___50___ oranges = $__50_____ $__1__ per orange ×___100___ oranges = $__100___ $__1___ per orange ×__150___ oranges =$ __150___
$__10__ per video game ×__5____ video games =$__50_____ $__10__ per video game ×__10___ video games =$__100____ $__10__ per video game ×__15___ video games =$__150___
2005 2006 2007
Total Market Value for Oranges $___50_____ + Total Market Value for Video Games $ ___50_____ = $____100_____ Total Market Value for Oranges $___100____ + Total Market Value for Video Games $ ___100____ = $____200____ Total Market Value for Oranges $___150____ + Total Market Value for Video Games $ ___150____ = $____300____
GDP deflator = Nominal GDP/Real GDP × 100
2005 2006 2007
Nominal GDP___100_____/ Real GDP ____100___ = ____1_____× 100 = ___100___ or ___NA__ % increase in prices
Nominal GDP___350_____/ Real GDP ____200___ = ___1.75___× 100 = ____175___ or ___75___ % increase in prices
Nominal GDP__750______/ Real GDP ___300___ = ___2.5_____× 100 = ____250___ or __150___ % increase in prices
Study Guide Ch. 12
19. 9.3 – 6.7/6.7 = .39 X100 = 39%
20. $9,300/281 = 33.096 X 1000 = $33096
21. Capital Deepening
22. There is an inability to create job
opportunities in the economy, which leads
to a lower standard of living.
23. If the government increases taxes, this will
put a strain on people’s ability to save
their money, vice versa
24. Trade Deficit
25. Technological
Binder Check Due Monday 11 - 14
1. All about GDP worksheet
2. Chapter 12 Practice Review
3. GDP Country Comparison
4. Ch. 12 Guided Reading
5. Study Guide Chapter 12
6. CW Puzzle Chapter 12
7. VIS Terms
8. Essential Questions
9. Daily Tens
10. Notes
11. Standard Sheet Ch. 7 + 8
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Daily Assignment Questions –
Chapter 12 Section 1 (pgs. 301 – 303)
1. What does macroeconomics study? (57)
2. Break down the carefully worded
definition of gross domestic product, by
explaining each of the following.
a) Dollar value…
b) Final goods and services…
c) Produced within a country’s borders…
3. What are intermediate products used
for?
4. What are the four categories of final
goods and services?
5. How does the expenditure approach
calculate GDP?
6. Describe the difference between durable
and nondurable goods.
7. How does the income approach work?
Application - Calculating GDP Product Quantity Price (per 1 unit) Dollar Value
Consumption Automobiles Replacement Tires Shoes
6 10 55
$20000
$60
$50
_________120,000________________ _________600_____________ _________2,750__________________
Investment Machinery Computers Cell Phones
10 30 45
$8000
$1500
$200
_________80,000__________________ _________45,000_________________ _________9,000_________________
Government Single Family Multifamily Commercial
3 5 1
$75,000
$300,000
$1,000,000
_________225,000________________ _________1,500,000_______________ _________1,000,000_______________
Net Exports *Figure this amount by taking Exports minus Imports*
Total Exports $10,000
Total Imports $20,000
___________ - __________
= ___________
_________-10,000________________
Total Gross Domestic Product = _________2,972,350______________________
Prices and Quantities
Year Price of Milk Quantity of Milk Price of Honey Quantity of Honey
2005
2006
2007
$1
$1
$2
100
200
200
$2
$2
$4
50
100
100
Calculating Nominal GDP
2005
2006
2007
___1_____ per milk ×___100_____ milk = __100_____
___1_____ per milk ×___200_____ milk = __200_____
___2_____ per milk ×___200_____ milk = __400_____
__2____ per honey ×___50____ honey =___100_____
__2____ per honey ×___100____ honey =__200______
__4____ per honey ×___100____ honey =__400______
2005
2006
2007
Total Market Value for Milk ___100_______ + Total Market Value for Honey ___100_______ = ____200________
Total Market Value for Milk ___200_______ + Total Market Value for Honey ___200_______ = ____400________
Total Market Value for Milk ___400_______ + Total Market Value for Honey ___400_______ = ____800________
Calculating Real GDP (base year 2005)
2005
2006
2007
___1_____ per milk ×__100______ milk = __100_____
___1_____ per milk ×__200______ milk = __200_____
___1_____ per milk ×__200______ milk = __200_____
___2____ per honey ×___50____ honey =__100______
___2____ per honey ×___100____ honey =__200______
___2____ per honey ×___100____ honey =__200______
2005
2006
2007
Total Market Value for Milk ___100_______ + Total Market Value for Honey ___100_______ = ____200_________
Total Market Value for Milk ___200_______ + Total Market Value for Honey ___200_______ = ____400_________
Total Market Value for Milk ___200_______ + Total Market Value for Honey ___200_______ = ____400_________
GDP deflator = Nominal GDP/Real GDP × 100
2005
2006
2007
____200________/____200________ × 100 = _____100________ or ____N/A________ % increase
_____400_______/____400________ × 100 = ____100_________ or ___0_________ % increase
___800_________/___400_________ × 100 = ___200__________ or ___100_________ % increase
Paper Airplane Simulation With a group of 4, form a company that builds paper airplanes. As a group
experiment and agree on a simple design. Your airplanes must be made of only one half of an 8 ½ x 11 piece of paper (8 ½ x 5 ½). Next choose a company name. This will be printed on both sides of the plane’s fuselage. Each member should practice making an airplane before beginning the activity.
The Simulation will consist of three shifts, during each shift the group’s workers will manufacture airplanes. All workers must cease work immediately after each shift.
Shift 1 Materials: 1 pair of scissors 1 Pencil 2 desks 10 sheets of paper Procedure: Each worker must work alone to make his or her airplanes. The materials must be shared. After the shift, the quality control manager (who cannot participate) should inspect the airplanes and record the number of airplanes completed.
Shift 2 Materials: 1 pair of scissors 1 Pen/Pencil 2 desks 10 sheets of paper Procedure: Before this shift begins, work as a group to break the production process into a series of steps. - Cutting the paper - Folding the paper - Writing the Company Name Record the results.
Shift 3 Materials: Using the costs listed on the productivity chart, decide as a group what additional capital goods you will purchase. You have $10.00. You may acquire a maximum of 6 desks, 3 scissors, 40 sheets of paper and 10 pencils. (You can also hire a new laborer – QCM) Procedure: Before this shift begins, determine the most efficient manner of producing the airplanes
1. What shift were you most productive?
2. Why were you most productive during that
shift?
3. What effect did investing in additional capital
goods have on productivity?
4. What product allowed your group the most
growth?
5. When did your group experience diminishing or
negative returns?
6. If instead of making an additional capital
investment in shift 3, what would have happened
if the company laid off one or two workers, how
would that have affected production?
7. How did your group exhibit capital deepening?
(pg. 320)
8. How could new technology have affected your
productivity? (pg. 322)
9. How could foreign trade have been positive for
your company? (pg. 322)
Paper Airplane Simulation Reflection Questions
GDP Simulation
Year Price Quantity Sold Total GDP
GDP Simulation
Year Price Quantity Sold Total GDP
1 1 10 10
2 2 10 20
3 2 20 40