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Things that look alike….

Things that look alike…. Measuring Economic Growth. To achieve the “American Dream” our economy has to grow. Enables people to have a higher standard of living People can purchase more of what they want Increases the government’s tax revenue and thus spending flexibility.

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Things that look alike….

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  1. Things that look alike….

  2. Measuring Economic Growth • To achieve the “American Dream” our economy has to grow. • Enables people to have a higher standard of living • People can purchase more of what they want • Increases the government’s tax revenue and thus spending flexibility

  3. Gross Domestic Product • Primary statistic for measuring growth and contraction of the economy • Total dollar value of all goods and services produced within a country in one year • Production, not sales • Nominal GDP is expressed in current dollars • Real GDP is adjusted for inflation (price changes)

  4. Components of GDP • C = Personal consumption purchases (2/3 of GDP – This is us! • I = Gross Investment – Business purchases • G = Government Spending (does not included transfer payments) • Transfer payments are something on which the government spends but gets nothing in return • X-M = Exports minus imports • GPD = C + I + G + X - M

  5. Limitations of GDP • Population – per capita – may show growth in total (productivity) but not growing as fast as population • Often not timely and can be very inaccurate • Underground economy not included • “Under the table work” • Unpaid work • Illegal activity

  6. The Multiplier Effect • Definition: The process through which an initial expenditure results in a magnified GDP increase because of the sequence of spending that is generated.

  7. Multiplier Effect continued • The spending of money on a purchase keeps on going • The receiver of the money spends it on goods and services • The next receiver spends it again and so on and so on and so on… • The amount gradually diminished because of our tendency to spend part and save part

  8. Example • If the multiplier is 4 and you spend $25,000 on a new car, GDP will increase by $100,000 • 4 x 25,000 = 100,000

  9. US GDP in billions

  10. Measuring Recovery

  11. US GDP per capita

  12. Top 20 nations by GDP

  13. Highest and Lowest GDPs

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