Reminder: Your Blog Entry #4 should be posted today. You're asked to have Chapter #5 read for tomorrow's class.
The Gross Domestic Product:
This just in: Here's a report from USAToday's website that will give some context to today's lesson. Skim through it without worrying too much about specifics.
Report: Recession expected to last 14 months - USAToday
What is GDP (Gross Domestic Product)? GDP is the total dollar value of all final goods and services produced in a country during a year.
Things to note:
- Both goods and services are included.
- Current market prices are used to aggregate
outputs. Government purchases, many of which do not occur on markets, are
valued at their cost of production.
- Only final goods and services are included. This
avoids "double counting".
- US GDP measures production by US citizens and
foreigners alike inside the borders of the United States.
- GDP is an annual flow, a rate of production for the economy.
What's the difference between GDP and GNP (gross national product)? Many people, including your teacher, grew up discussing GNP. In 1992, the United States joined the rest of the world in using GDP as its national economic accounting system. GDP measures output produced inside the United States, whether by foreigners or US citizens. GNP, by contrast, measures output of US citizens, no matter where they are located in the world. As a result, US GNP tends to be about .3% higher that GDP, but that gap has been shrinking.
Here's a list of GDPs by Country you might find interesting. Scroll down that page to find some links to similar lists.
What other names are used to refer to the nation's annual output of goods and services? Some you will find in the media include: output, total output, national output, income, total income, national income, and aggregate supply.
How do we calculate GDP? A formula created by John Maynard Keynes is used to total the four categories that make up the Gross Domestic Product.
GDP = C + I + G + NX (or X-M)
or Gross Domestic Product = Consumption + Investment + Government Expenditure + Net Exports
Don't forget the
difference between nominal and real GDP values. Real GDP takes inflation into
account.
Is it the "Gross Deceptive Product"? Here are some potential weaknesses in using GDP.
- Some things are produced but never sold, so they
are not included in GDP. What examples can you think of?
- Some expenditures are hidden from data gathers,
so they are unrecorded transactions. Examples?
- Some items are included in GDP that do not
reflect net benefits to society. Consider the Exxon Valdez.
- Government expenditures are based at cost,
despite the fact that market forces might value them differently.
- Cross-country comparisons are made difficult because of climate, cost of living, and other differences.
Let's test your understanding: Which of the following raise GDP by $500?
- A steel company sells $500 of steel to an auto
manufacturer.
- You are hired by the government to shuffle paper
uselessly for $500.
- You are hired by General Motors to shuffle paper
uselessly for $500.
- An antique dealer sells a $5000 painting,
pocketing her 10% commission.
- You receive $500 in an unemployment insurance
check from the government.
- You win $500 betting on the Mounds Park Academy
soccer team.
Real Gross Domestic Product - May 29, 2008 - A Case Study This is from a lesson produced by the National Council on Economic Education.
This site is extremely informative, and it is worth a close examination. We'll check out the graphs and some of the data in particular.
SITE OF THE DAY: Wachovia College Budget Calculator
As I mentioned earlier, we'll do some "personal" or "consumer" economics throughout the course at different times. Sometimes, it will match up perfectly with what we are doing in class. Other times, I'll just stick it in when I feel like it. (This is one of those times...)
Since MPA's promotional literature touts our 100% college acceptance rate, I'll assume that most of you plan on doing that at some time in the future. Let's take a closer look at the costs. You can do this in a number of places on the web, but I thought this was pretty user friendly.
Before you begin: You may need to make some assumptions. For example, if you have applied to several schools, run the program with the various numbers. Or, try it each way depending on whether you do or don't get that "big scholarship". In many cases, you'll have to make estimates, but maybe I can help with those. Remember, if you come up with "scary" answers, that is what college loans and other sources of financial aid are for. Don't just decide not to go...
DO THIS: Run through the activity first doing your best guesses on college you'll attend, costs, and income.
Now, do it for another of
your college choices, or change another significant variable (live off campus,
get a job, whatever). Share that new figure if you would like. We can discuss
any of this today if you'd like. Alternatively, we can come back to it in the
future.
HOMEWORK for tomorrow - Wednesday, November 19th
Chapter #5 of Naked Economics, "Economics of Information," should be read before the start of class on Wednesday.
If at all possible, I'd love to have all of the quizzes made up before Thanksgiving break begins. Let's make that the goal.
