Unit 3 GDP

In the context of GDP, "investment" means financial assets such as stocks and bonds.

Why are transfer payments not included in the calculation of GDP?

Country A reports the following economic activity for one year (in billions of dollars):

Consumption (C): 500

Investment (I): 200

Government Spending (G): 300

Exports (X): 150

Imports (M): 100

Using the expenditures approach, what is Country A’s GDP?

Net exports = X − M

What is true about trade surplus?

What types of products are excluded from GDP because they are used to make other products?

Which of the following would increase GDP?

Why are replacement tires for your car counted in GDP, but tires on a new car are not counted separately?

•GDP – The dollar value of all final goods and services produced within a country in one year.  Not to be confused with national income, or how much all workers in a country earn.

What is GDP?

GDP per capita – GDP divided by population. 

This is a measure of how much the average person in a country produces, not how much they earn.  It is considered a good way to measure standard of living in a country.

How do we find per capita GDP?

Standard of living – this is often thought of as quality of life in a country. 

It includes things like measurable things like wealth, amount of material goods, and availability of services like health care and education as well as more difficult to qualify ideas like freedom, safety, and stability.

What is the standard of living?

How does the standard of living relate to GDP and what factors contribute to it?

The GDP of a country is measured in its own currency—the United States uses the US dollar; most countries of Western Europe use the euro; Japan uses the yen; and Mexico uses the peso.

Because of this, comparing GDP between two countries requires converting to a common currency.

What is the purpose of using an exchange rate when comparing the GDP of countries with different currencies?

Mexico's currency is called the ....

La moneda de México se llama...

The US economy has the largest GDP in the world, by a considerable amount. The United States is also a populous country. In fact, it is the third largest country by population in the world—although it's well behind China and India. So is the US economy larger than other countries' economies just because the United States has more people or because the US economy is actually larger on a per-person basis?

This question can be answered by calculating countries' GDP per capita—the GDP divided by the population.

What is the formula for calculating GDP per capita?

What happens if a nation’s population grows faster than its output?

What is a potential problem if a nation’s population grows too slowly?

In addition, a growing population puts more demand on resources. When a growing population shifts toward certain areas, such as cities or suburbs, it puts different pressures on existing resources.
In Atlanta, Georgia, for example, urban sprawl and traffic congestion have become major problems. In heavily populated areas of Arizona, Nevada, and southern California, adequate supplies of fresh water have become concerns. Because it takes a long time to plan and construct a country’s infrastructure— the highways, levees, mass transit, communications systems, electricity, water, sewer, and other public goods needed to support a population—we need to pay attention to future population trends. If we neglect them, even modest shifts in the population can cause enormous problems in the future.

Why is it important to plan infrastructure with population trends in mind?

Who has a larger per capita GDP in US dollars?

A high standard of living is typically characterized by:

Economists use different indicators to understand how well people in a country are living — known as the standard of living.
Life Expectancy – The average number of years a person is expected to live in a country.
Literacy Rate – The percentage of people who can read and write.
Infant Mortality Rate – The number of babies who die before their first birthday for every 1,000 born.

Based on the info above, which of the following is NOT commonly used to measure a country's standard of living?

The ultimate source of the region’s wealth is Washington’s unparalleled human capital. The population is the best educated of any large metro’s in the United States; about half the region’s adults hold bachelor’s degrees, and nearly a quarter have graduate degrees.

—Richard Florida, “The Boom Towns and Ghost Towns of the New Economy,” The Atlantic, October 2013

Which statement can best be inferred from the excerpt?

Human capital – this term describes the economic value of a worker and his or her skills.  It encompasses things like health, education, training, and experience.  Generally, the higher the level of human capital, the more productive the worker is.

What does Human Capital refer to in economics?

Natural resources – One of the four factors of production, natural resources are considered to be anything non-manmade in a country that aids in the production of goods and services or economic activity.  This can include things like minerals, forests, or fisheries as well as things like arable land, natural ports, or potential for hydroelectric power.

Which items are natural resources? Select ALL that apply...

Physical capital refers to the tools, machines, buildings, and equipment that help produce goods and services. When countries invest in physical capital, workers can produce more in less time, helping to increase Gross Domestic Product (GDP) — the total value of goods and services a nation produces.

Document A:
In Country A, most factories use modern machinery and technology to manufacture cars. Each worker produces 10 cars per week.

Document B:
In Country B, factories rely on old equipment that often breaks down. Each worker produces only 4 cars per week.

Based on the documents above, what can be inferred about the relationship between physical capital and a country's GDP?