Introduction•The Gross Domestic Product (GDP)–the dollar amount of all final goods and services produced

within a country’s national borders in a year–is the single most important measure of the economy’s

overall economic performance.•When GDP does not do well, neither does the rest

of the economy.•Economists devised national income accounting–a system of statistics and accounts that keeps track of production, consumption, saving, and investment–

to track overall economic performance.

Introduction (cont.)

• This data becomes part of the National Income and Product Accounts (NIPA) kept by the U.S. Department of Commerce.

• The NIPA is like a statistical road map that tells Americans where they are and how they got there.

GDP–The Measure of National Output

• Gross Domestic Product (GDP), a measure of national output is computed by multiplying all final goods and services produced in a 12-month period by their prices.

• Intermediate goods, secondhand sales, and nonmarket transactions are excluded from GDP.

GDP–The Measure of National Output (cont.)

GDP–The Measure of National Output (cont.)

• GDP tells nothing about the composition of output or the impact of production on quality of life.

• Despite its limitations, GDP is still the best measure of overall economic health.

GNP–The Measure of National Income

• Gross National Product (GNP) is equal to GDP plus all payments that Americans receive from outside the United States minus all payments made to foreign-owned resources inside the United States.

• Net National Product (NNP) is equal to GDP minus depreciation.

• National Income (NI) is equal to NNP minus all taxes paid by businesses other than the corporate profits tax.

GNP–The Measure of National Income (cont.)

• Personal Income (PI) is the total amount of income received by individuals before taxes.

• Disposable Personal Income (DI) is PI less taxes.

Economic Sectors and Circular Flows

• The consumer sector includes individuals/households.

• The investment sector includes businesses. • The government sector includes local, state,

and federal levels of government.• The foreign sector includes all consumers and

producers outside the United States.

Economic Sectors and Circular Flows (cont.)

Figure 13.3Circular Flow of Economic ActivityFigure 13.3Circular Flow of Economic Activity

The Output-Expenditure Model

• The output-expenditure model is a macroeconomic model used to show aggregate demand by all the economic sectors.

• The equation for the output-expenditure model is GDP = C + I + G + X .

• The book uses F instead of X.• Each sector spends its income on different

types of goods and services.

The Output-Expenditure Model (cont.)Figure 13.3Circular Flow of Economic ActivityFigure 13.3Circular Flow of Economic Activity

Real vs. Current GDP

• Real GDP is calculated by dividing current GDP by the implicit GDP price deflator and multiplying by 100.

• Converting current GDP into real GDP is useful for comparing over time.

Introduction

• The rate at which population grows influences GDP and economic growth in several ways.

• First, for an economy to grow, its factors of production must also grow or become more productive.

• One of the factors of production, labor, is closely tied to the size of the population.

Introduction (cont.)

• Second, changes in population can distort some macroeconomic measures like GDP and GNP–which is why they are often expressed on a per capita, or per person, basis.

• If a nation’s population grows faster than output, per capita output falls and the country could end up with more mouths than it can feed.

• Or if a nation’s population grows too slowly, there may not be enough workers to sustain economic growth.

Introduction (cont.)

• Finally, population growth affects the quality of life, especially in fast-growing areas such as Atlanta.

• The study of population involves more than a simple total of people.

Population in the United States

• A census is an official count of all people, including their place of residence.

• The Census Bureau conducts surveys every month and a full census every 10 years.

• The Census Bureau tabulates and presents its data in two classifications: the urban population and the rural population.

• The rate of population growth in the United States has been declining since at least 1860, falling to just 0.9 percent by 2002.

Population in the United States (cont.)

• The Census Bureau tracks geographic distribution of population and reports that the population is growing in the West and South and shrinking in the Northeast and Central Plains regions.

• The Census Bureau tracks the shifts in the center of population, or the point where the country would balance if it could be laid flat and people all weighted the same.

Population in the United States (cont.)

Projected Population Trends

• Factors that affect population are the fertility rate, life expectancy, and net immigration.

• The dependency ration will rise as a result of aging of the baby boom generation.

• Factors that affect population will also affect the racial and ethnic makeup of the United States.

Projected Population Trends (cont.)

Projected Population Trends (cont.)

Introduction

• Economic growth, one of the seven major goals of the United States economy, has the potential for improving everyone’s lot in life.

• Everyone includes not only every American, but also people living in other countries.

Economic Growth in the United States

• Economic growth is best measured by real GDP per capita.

• Real GDP per capita has grown somewhat more slowly than total real GDP.

Economic Growth in the United States (cont.)

Economic Growth in the United States (cont.)

Importance of Economic Growth

• Economic growth increases the standard of living.

• Economic growth increases the tax base, allowing the government to provide more and better-quality public services.

• Economic growth helps reduce poverty and related problems.

Importance of Economic Growth

• Economic growth increases U.S. demand for imports, which helps create jobs and generate income in foreign countries.

• Economic growth in the United States encourages other countries to adopt market economies.

Factors Influencing Economic Growth

• Natural (and renewable) resources, including land and minerals, contribute to economic growth.

• A high capital-to-labor ratio contributes to economic growth.

• Skilled and growing labor force contributes to economic growth.

• Entrepreneurs contribute to economic growth.

Productivity and Growth

• Productivity has increased in the United States since 1959,with large increases occurring since 1996.

• Declines in productivity hurt the economy.

Productivity and Growth

SECTION III POVERTY & THE DISTRIBUTION OF INCOME

• People are classified as living in poverty if their incomes fall below a predetermined level, or threshold. In 2009, for example, a family of four earning 22,050 or less was determined to live in poverty.

• Living in poverty triggers governmental support for welfare programs like food stamps, Head Start, and other public assistance programs.

POVERTY

POVERTY

Families and individuals are defined as living in poverty if their incomes fall below certain levels.

OTHER ANTI-POVERTY PROGRAMS

• Over the years, the federal government has instituted a number of programs to help the needy. Most come under the general heading of welfare.

• Income Assistance – (TANF) Temporary Assistance for Needy Families (1997), (SSI), Supplemental Security Income

• General Assistance – Food Stamps, WIC • Tax Credits – Earned Income Tax Credit (1975)

DISTRIBUTION OF INCOME UNDERSTANDING THE LORENZ CURVE

DISTRIBUTION OF INCOME UNDERSTANDING THE LORENZ CURVE

• The Lorenz Curve shows how much the actual income varies from and equal distribution of income based on households

REASONS FOR INCOME INEQUALITY

• Income is never distributed equally among households. There are a number of reasons that can be used to explain why.

• Education – normally those with higher education have higher incomes

• Wealth – normally accumulated by past family generations can be used to create more wealth. This allows wealth to stay in the hands of a small percentage of the population.

INCOME DISTRIBUTION (CONTINUED)

• Discrimination – many times women and minorities are not promoted or kept out of certain professions.

• Ability – some individuals have unique talents that allow them to earn more income. (i.e. professional athletes)

• Monopoly Power – professional groups like the AMA or Pilots Associations can demand and receive higher incomes.

• Loss of Manufacturing - service jobs now dominate job creation and service jobs normally pay less than manufacturing jobs.

INCOME DISTRIBUTION (CONTINUED)

• Changing Family Structure – the dramatic shift from two parent families to a one parent family changes the family income structure.

• Wealth itself – the ability of wealthy families to send their children to colleges and universities (better educate)helps the wealthy stay wealthy.