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The American Economy Chapter 18

The American Economy Chapter 18. Gross Domestic Product Lesson 1. Essential Questions: Why and how do people make economic choices? It Matters Because: The success of the United States economy affects the quality of life for everyone who lives here Guiding Question

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The American Economy Chapter 18

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  1. The American EconomyChapter 18

  2. Gross Domestic ProductLesson 1 • Essential Questions: • Why and how do people make economic choices? • It Matters Because: • The success of the United States economy affects the quality of life for everyone who lives here • Guiding Question • Why is Gross Domestic Product important to a nation?

  3. Why GDP is Important • The U.S. economy is busy and all around you • Farmers raise crops • Factories produce many kinds of goods • Employees stock shelves • Shoppers crowd the stores to buy products • Products- anything that is produced • Goods and services

  4. GDP Measures Total Output • Gross Domestic Product (GDP)- total market value of all final goods and services produced in a country during a single year. • 2010 annual output (amount produced) in the U.S. • 15 trillion dollars • The worlds largest national economy • US output is 1/5 of all goods and services produced in the world • 2010 China had the second-largest economy- 9 trillion dollars

  5. GDP Represents Income • Making goods and producing services create income for people in the economy • GDP is a way to measure the nations income • Includes purchases made by consumers, businesses and government

  6. Factors of Production • 4 Factors of Production • Natural Resources • Labor • Capital • Entrepreneurs- a risk-taking person who starts a new business, introduces a new product, or improves a management technique • They invest in companies that might not succeed • They take risk in hope for reward • All factors of production earn income when a product is produced (i.e. Bicycle, car)

  7. Measuring GDP • Guiding Question- Why is GDP difficult to produce? • GDP is difficult to measure because so many different goods and services are produced during a year • To measure GDP, thousands of highly skilled economists and government workers are needed (Page 484 example) • (Price of goods sold) x (Quantity Produced)

  8. GDP Only Includes Final Products • Not all economic activities are included in GDP • GDP reflects only the market value, or price of final goods and services produced and sold. • Intermediate goods • Goods that go into making a final good • (i.e. parts that go into making a car) • Consumer goods and services- bicycles, clothing, and haircuts • Producer goods- goods businesses use such as machines, office supplies (investment and capital goods)

  9. What GDP Does Not Include • GDP- does not include every kind of activity in the economy • Intermediate goods and services • Used goods (transferring) • Work performed around the home • Cooking, cleaning, yard work

  10. GDP Per Capita • GDP Per Capita- Gross Domestic Product on a per-person basis • Per-capita- means “for each person” • GDP divided by population • China has the 2nd largest economy in the world • China also has the largest population • 100 other countries have a larger GDP per-capita than China

  11. Standard of Living • Standard of Living- the material well-being of and individual, a group, or nation • Measured by how well its needs and wants are satisfied • How production takes place is also important • China’s economy is very productive, but it is also a big polluter • Pollution does contribute to country having a lower standard of living

  12. Economic Flow and Economic GrowthLesson 2 • Essential Questions: • Why and how do people make economic choices? • It Matters Because: • People of all ages and from every part of the country contribute to the U.S. economy • Guiding Question • Why do resources, goods, and services flow in a circular pattern in a market system?

  13. The Circular Flow Model • Circular flow model- a model showing how goods, service, and money flow among sectors and markets in the American economy • Two parts are markets- where buying and selling takes place • Two parts are sectors- the two main groups of participants in the markets- consumers and businesses active in the economy • Money flows in one direction while the products and productive resources flow in the opposite direction • The circular model also shows that markets link the consumer and business sectors

  14. The Factor and Product Markets • Factor Market- a market where factors of production are bought and sold • Natural resources, labor, capital • Product Market- a market where goods and services are for sale

  15. The Consumer and Business Sectors • Consumer Sector- consumers take part in both the factor and product markets • Consumers go to work, they sell their labor in the factor market • When they get paid the money is spent in the product market • Business Sector- represents all the companies that produce goods and services • Businesses sell goods and services in the product market • They use the money they receive from sales to buy land, labor and capital

  16. The Government Sector • Government Sector- made up of units of the federal, state, and local governments • These units go to the product market to buy goods and services • Government also sells goods and services to earn income • State universities charge tuition • Government also use taxes and borrowing to raise money

  17. Foreign Sector • Foreign Sector- made up of all the people and businesses in other countries • They act in both U.S. markets • Businesses in other countries buy raw materials in the U.S. factor markets • They also sell their goods and services to consumers in the U.S. product markets • 15% of goods and services in the U.S. comes from other countries • 13% of what we produce are sold outside the U.S.

  18. Promoting Economic Growth • Economic growth- the increase in a country’s total output of goods and services over time • If GDP goes up, it means the economy has grown • Government and businesses work hard to promote economic growth • When the economy grows, the nation’s wealth and standard of living increases • Additional resources and increased productivity are needed for economic growth

  19. Increasing Productivity • Productivity- a measure of how efficiently resources are used to create products • Specialization-occurs when people, businesses, regions and/or nations concentrate on goods and services they can produce better then anyone else • Division of Labor- The breaking down of job into separate, smaller tasks to be performed individually • Human Capital- the sum of people’s knowledge and skills that can be used to create products • Three key factors • Education, training, experience

  20. Capitalism and Free EnterpriseLesson 3 • Essential Questions: • Why and how do people make economic choices? • It Matters Because: • Each of us enjoys the freedom to choose a job and decide how to use our money under the economic system called capitalism • Guiding Question • What makes capitalism a successful economic system?

  21. Capitalism and Free Enterprise • How did the United States become such an economic power house? • Capitalism- a system in which private citizens own most, if not all, of the means of production and decide how to use them within legislative limits • Free Enterprise- economic system in which individuals and businesses are allowed to compete for profit with minimum government interference

  22. Six Features of Free Enterprise • Economic Freedom- people are free to buy and sell the factors of production • These freedoms allow the market place to adapt quickly to changing economic conditions. • The economy is more efficient and production • Markets- buyers and sellers exchange goods and services for money in markets • Buyers and sellers decide what is supplied and demanded

  23. Six Features of Free Enterprise • Voluntary Exchange- the act of buyers and sellers freely and willingly engaging in market transactions • Buying and selling of goods and services • The Profit Motive- the driving force that encourages individuals and organizations to improve their material well-being • Profit- the money a business receives for its products or services over and above its costs

  24. Six Features of Free Enterprise • Competition- the struggle that goes on between buyers and sellers to get the best products at the lowest prices • Competition leads to greater efficiency, higher quality products, and more satisfied customers • If producers cannot compete, they might be forced out of business • Private Property Rights- the freedom to own and use our property as we chose as long as we don’t interfere with the rights of others • Gives people incentive to work hard, save, and invest • People tend to take better care of things they own

  25. The Origins of U.S. Capitalism • Adam Smith- Scottish philosopher and economist • 1776 he published “The Wealth of Nations” • Father of modern economics • The best way for society to advance is for people to work for their own self-interest • Laissez-faire economics (to let alone) • The belief that government should not interfere in the market place • “the invisible hand”- market exchanges work best with little government interference

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