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Activator GDP Chapter 12

* Create a chart and predict a figure for each of the following


Trend

1900-1920
Prediction

Average Life Expectancy


(years)

2011

Actual Figure

Prediction

Actual Figure

47

78.37

$520
(5609.15 in
todays dollars)

$48,147

Poverty Rate (percent of US


Households)

40%

15.1%
(46.2 million)

High School Completion


(percent of adults)

22%

92%

Per Capita Income

Chapter 12 Gross Domestic Product and Growth


Macroeconomics the study of the behavior and decision making of the

economy as a whole.
i.e. inflation, unemployment, and economic growth
Gross Domestic Product (GDP) the total market value of all final goods
and services produced within a countrys borders in a given period of
time.
Measures the economys total income
Total income = total expenditure

Gross Domestic Product Defined


Market Dollar Value prices of goods and services

F150 - $35,000, Apple $1.00

Gross Domestic Product Defined


Of All all items produced in the economy and sold

legally in commercial markets.


Pears, grapefruit, books, movies, etc.

Gross Domestic Product Defined


Final only value of final goods and services

(excluding intermediate products).


Included Cheeseburger(output)
Excluded Cow parts (inputs)

Gross Domestic Product Defined


Goods and Services Tangible and intangible

products
Hair products and haircuts

Gross Domestic Product Defined


Produced only includes new goods and services

produced currently.
Included - New car
Excluded - used car

Gross Domestic Product Defined


Within a country only measures production within a

countrys borders.
Counted - Japanese company in the U.S.
Not Counted - Am. Company in Japan

Gross Domestic Product Defined


In a given period of time measured within a specific

interval of time,
Usually a year or quarter (three months)

Components of GDP

Four components:

GDP (Y) = C + I + G + NX
1.

C - Consumption of goods and services by households (Consumer Spending)


Accounts for 70% of GDP

2.

I - Investments by businesses in goods and services (Business Spending)


Accounts for 15% of GDP *New-home construction considered I*

3.

G - Government goods and services (Government Spending)


Accounts for 20% of GDP

4.

NX - Net exports or imports of goods and services, (Foreign Spending)


*Exports (X) Imports (M)*
Accounts for -5 of GDP

2011 GDP was approximately 15 Trillion

Consumption

Investment

Government

Net Exports

Application - Calculating GDP


Product

Quantity
Consumption Car Sales
10
Fast Food Sales
12
Personal Computers
50

Price (per 1 unit)


Dollar Value
4000
$400 ____________________________
2400
$200 ____________________________
$100 ____________________________
5000

Business Computers
Telecommunications

15
10
45

300
$20 ____________________________
300
$30 ____________________________
$200 ___________________________
9000

Government

Military Personnel
Helicopters
Roads

5
2
1

Net Exports

*Figure this
amount by taking
Exports minus
Imports*

Total
Exports
Total
Imports

Investment

Tractors

250000
$50,000 __________________________
400000
$200,000 __________________________
300000
$300,000 __________________________
$10,000
$20,000

-10000
__________________________

$961,000
Total Gross Domestic Product = _______________________________

Excluded from GDP


Intermediate

products - inputs used to produce final goods and


services; excludes double counting
The tires that come with the car is not counted as a final good
However if you get a flat and buy the same tire it is counted as a final
good

Excluded from GDP


Second-hand sales - refer to the sales of used goods.

Excluded from GDP


Nonmarket Transactions/Underground Economy

transactions that do not


take place in the legal marketplace (i.e. fixing your car, mowing your lawn,
babysitting, etc.)

Excluded Products from GDP


Black Market illegal activities, gambling, drugs, prostitution,

smuggling, etc.

Excluded from GDP


Transfer Payments redistribution of money from tax-payers to some

entitled group, i.e. Social Security, welfare, unemployment checks, etc.

GDP Poster Project


Poster Requirements:
1. Title - Gross Domestic Product
2. Definition of GDP
3. At least 1 picture to represent each
of the components of GDP.
4. At least 1 picture to represent each
of the excluded components of GDP
5. Label, describe and summarize each
picture
Components of GDP:
1. Consumption
2. Government
3. Investment
4. Net Exports (export and import)
Excluded:
1. Intermediate products
2. Second-hand sales
3. Nonmarket Transactions
4. Underground Economy
5. Cash Transfers

Daily Assignment Questions Page 302


Housing Market GDP

Important Point: Housing is


listed under the Investment
category, not Consumption
1.
When was the house counted
towards GDP?
2.
Why was it not counted when
it was sold this year?
3.
What can be counted towards
GDP that was a service
provided as a result of the sale
of the house?
4.
What were the lumber, nails,
shingles, windows and other
items used to build your
neighbors newly built house
categorized as?
5.
What would be added to GDP?

Review Components of GDP


Indicate the components of GDP that each of
the following transactions falls under.
1. A family buys a new refrigerator.
2. Ford opens a new plant in Detroit,
Michigan.
3. Glynn County builds a new middle
school.
4. China imports commodities from the
United States.
What exclusionary components are affected
by the following transactions?
5. A garage sale in your neighborhood.
6. The tires, bolts, and engine for a new
automobile.
7. The illegal sale of imitation purses.
8. Mowing your lawn every other
Saturday and being paid an
allowance.
9. Checks sent to Social Security
recipients

GDP Simulation
Year

Price

Quantity Sold

Total GDP

Nominal Versus Real GDP

Nominal GDP GDP measured in name only (current prices), not adjusted for inflation.

Real GDP GDP expressed in fixed (unchanging prices), adjusted for inflation.

Year 1 Nominal GDP

1.

Suppose an economys entire


output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
+ 10 trucks at $20,000 each =
Total =

Year 2 Nominal GDP

Year 2 Real GDP

Nominal Versus Real GDP

Nominal GDP GDP measured in name only (current prices), not adjusted for inflation.

Real GDP GDP expressed in fixed (unchanging prices), adjusted for inflation.

Year 1 Nominal GDP

1.

Suppose an economys entire


output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000

Year 2 Nominal GDP

Year 2 Real GDP

Nominal Versus Real GDP

Nominal GDP GDP measured in name only (current prices), not adjusted for inflation.

Real GDP GDP expressed in fixed (unchanging prices), adjusted for inflation.

Year 1 Nominal GDP

Year 2 Nominal GDP

1.

1.

Suppose an economys entire


output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000

In the second year, the


economys output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
+ 10 trucks at $21,000 each =
Total =

Year 2 Real GDP

Nominal Versus Real GDP

Nominal GDP GDP measured in name only (current prices), not adjusted for inflation.

Real GDP GDP expressed in fixed (unchanging prices), adjusted for inflation.

Year 1 Nominal GDP

Year 2 Nominal GDP

1.

Suppose an economys entire


output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000

1.

Total = $350,000

Total = $370,000

In the second year, the


economys output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
$160,000
+ 10 trucks at $21,000 each =
$210,000

Year 2 Real GDP

Nominal Versus Real GDP

Nominal GDP GDP measured in name only (current prices), not adjusted for inflation.

Real GDP GDP expressed in fixed (unchanging prices), adjusted for inflation.

Year 1 Nominal GDP

Year 2 Nominal GDP

Year 2 Real GDP

1.

Suppose an economys entire


output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000

1.

1.

Total = $350,000

Total = $370,000

In the second year, the


economys output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
$160,000
+ 10 trucks at $21,000 each =
$210,000

To correct for an increase in


prices, economists establish a
set of constant prices by
choosing one year as a base
year. :
10 cars at $15,000 each =
+ 10 trucks at $20,000 each =
Total =

Nominal Versus Real GDP

Nominal GDP GDP measured in name only (current prices), not adjusted for inflation.

Real GDP GDP expressed in fixed (unchanging prices), adjusted for inflation.

Year 1 Nominal GDP

Year 2 Nominal GDP

Year 2 Real GDP

1.

Suppose an economys entire


output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000

1.

1.

Total = $350,000

Total = $370,000

In the second year, the


economys output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
$160,000
+ 10 trucks at $21,000 each =
$210,000

To correct for an increase in


prices, economists establish a
set of constant prices by
choosing one year as a base
year. :
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000

GDP Deflator
Year 2 Nominal GDP $370,000
Year 2 Real GDP - $350,000

Calculate the increase in prices based on the


GDP
Deflator formula
GDP deflator = Nominal GDP/Real GDP 100

370,000
_____________ 100 = 106
350,000
6%
_____rise
in inflation

Nominal GDP Versus Real GDP (RGDP)

$8

$9

1990

1995

$11

$10
2000

2012

Nominal GDP is the Price

Year

Price

RGDP is the Pizza Pie


(physical units sold)

Units
Sold

Nomina Real
l GDP
GDP

1990

$8

10

$80

$80

2012

$11

10

$110

$80

Nominal GDP Versus Real GDP (RGDP)

$8

$9

1990

1995

$10
2000

Nominal GDP is the Price

Year

Price

RGDP is the Pizza Pie


(physical units sold)

Units
Sold

1990

$8

10

2012

$11

10

$11
2012
Nomina Real
l GDP
GDP

Inflation
and
Inflation
Rate
Inflation inflation is a rise in the general level of prices of goods and services in
an economy over a period of time.

Inflation Rate - percentage change in some measure of the price level from one
period to the next.

GDP Deflator an index that converts output measured at current prices into
constant-dollar GDP.
The GDP deflator shows inflation, how much a change in the base year's GDP relies upon changes in
the price level.

Inflation Rate = GDP Deflator in year 2 GDP Deflator in year 1


GDP Deflator in year 1

GDP
Prices and Quantities
Price of Hamburgers

Year

Price of Hot Dogs

Quantity of Hot Dogs

2005
2006
2007

$1
$2
$3

100
150
200

2005
2006
2007

Calculating Nominal GDP


$1
100 hot dogs = ____
$100
$2 per hamburger ____
50 hamburger = ____
$100
________
per hot dog ________
_____
$2
150 hot dogs = ____
$300
$3 per hamburger ____
100 hamburger = ____
$300
________
per hot dog ________
_____
$3
200 hot dogs = ____
$600
$4 per hamburger ____
150 hamburger = ____
$600
________
per hot dog ________
_____

2005
2006
2007

$100 + Total Market Value for Hamburgers _______


$100 = __________
$200
Total Market Value for Hot Dogs _______
$300
$300
$600
Total Market Value for Hot Dogs _______ + Total Market Value for Hamburgers _______ = __________
$600 + Total Market Value for Hamburgers _______
$600 = __________
$1200
Total Market Value for Hot Dogs _______

2005
2006
2007

Calculating Real GDP (base year 2005)


$1 per hot dog ______
100 hot dogs = _______
$100
$2
50 hamburger = $100
______
______
per hamburger ______
____
$200
$1 per hot dog _______
150 hot dogs = ______
$150
$2
100 hamburger = ____
______
______
per hamburger _____
$300
______
______
per hamburger _____
$1 per hot dog _______
200 hot dogs = ______
$200
$2
150 hamburger = ____

2005
2006
2007

$100
$100
$200
Total Market Value for Hot Dogs __________
+ Total Market Value for Hamburgers __________
= __________
$150
$200
$350
Total Market Value for Hot Dogs __________
+ Total Market Value for Hamburgers __________
= ___________
$200
$300
$500
Total Market Value for Hot Dogs __________
+ Total Market Value for Hamburgers __________
= __________

2005
2006
2007

$2
$3
$4

Quantity of Hamburgers
50
100
150

Calculate the increase in prices based on the GDP Deflator formula


GDP deflator = Nominal GDP 100
Real GDP
$200
$200
100
____________/____________
100 = _____________
$600
$350
171
____________/____________
100 = _____________
240
____________/____________
100 = _____________
$1200
$500

Calculating GDP
1.

Calculate the GDP deflator using the following figures:


Real GDP 2008 ($13.7 trillion)
Nominal GDP 2008 ($14.6 trillion) using the following formula:
1.065
107
100 = _____
Nominal GDP X 100 = __14.6 = _______X
13.7
Real GDP

2. Calculate the nominal GDP for each year, then calculate the GDP deflator for year 2 using
year 1 as a base year.
PRODUCTION AND PRICES
YEAR 1

YEAR 2

GOODS

OUTPUT

PRICES

OUTPUT

PRICES

APRICOTS

10

$50

10

$55

BROCCOLI 10

$25

12

$25

CARROTS

$25

$30

10

Nominal GDP X 100 =


Real GDP

__1120
1025

Year 1:
2 Real GDP:
Apricots - $500
Broccoli - $300
Carrots - $225
Total GDP - $1025

Year 2:
2Nominal:
Apricots - $550
Broccoli - $300
Carrots - $270
Total GDP - $1120

= _______X
100 = _____
1.09
109 = 9% inflation

Business Cycles

Business Cycle economy-wide fluctuations in a market or


economy over several months or years.

1.

Expansion period of economic growth as measured by


GDP

2.

Peak When real GDP stops rising

3.

Contraction economic decline marked by falling real GDP

4.

Rise in unemployment

Trough bottomed out, economy reaches its lowest


point, real GDP stops falling

Recovery - A return to a normal state of the economy, where


the economy begins to show signs of health "signs of recovery
in the housing market.

Recession
Recession a prolonged
economic contraction
Real GDP falls for two
consecutive quarters
(6 straight months)
Rise in unemployment, falling
profits, bankruptcies,
foreclosures, etc.

GDP

Depression

A long and severe


recession (8 quarters of
declining real GDP)
Severely high
unemployment and low
output

Stagflation

Combines two words, stagnant and inflation, is a


decline in real GDP combined with a rise in price
level

Four Main Economic Variables


Business Investment
investing in physical capital
(plants and equipment)
2. Interest Rates and Credit
the cost of borrowing, added
to the principal investment
3. Consumer Expectations
fears of a weakening economy
can cause consumer
confidence to fall, cut back on
spending
4. External Shocks conditions
in society that affect normal
economic activity
Oil spill in the gulf, severe
drought, hurricanes, etc.
1.

Section 2 Daily Assignment Questions pgs. 312 316


1.

How does businesses investment affect


GDP?

2.

What happens when firms cut back on


investment spending?

3.

How does reduced investment affect


industries that produce capital goods?

4.

What do consumers in the U.S. use credit to


purchase; what is the cost of credit?

5.

How do high interest rates affect consumption


and business investment?

6.

How did high interest rates affect the


economy in 1980?

7.

What happened to unemployment as a result


of the recession?

8.

How does a fear of a weakened economy


affect spending?

9.

What effect does reduced spending have on


the economy?

10.

How was this evident in the spring of 2003?

11.

What happens when consumer confidence


rises?

Percentage Change in Real GDP


1.

Calculate the percentage change in


Real GDP from July 2009 ($13.7
trillion) to March 2010 ($14.2
trillion) using the following
formula:
New number Original X 100 =
Original
0.0365 100 = _______
3.65%
14.2 13.7 = _______X
13.7
2. Calculate Real Per Capita GDP by using
the following formula:
Real GDP 2009
Total Pop. 2009
*2009 Real GDP
$13,700,000,000,000
*2009 Total Pop. 304,500,000
137000 = _$44,991_
3.045

Economic Growth
Economic Growth sustained increases in an economys real

GDP
Real GDP per capita real GDP divided by the total population
Per Capita for each person
Average income for each person in a country

Considered the best measure of a nations standard of living.

GDP
and
Quality
of
Life
Nations with higher per capita GDP enjoy higher quality of life, such as:

Better Nutrition
Comfortable housing
Longer life spans
Better education
Infrastructure/Telecommunications
(cable, internet, phone lines, etc.)

Productivity and Economic Growth

Productivity the amount of goods and services produced for each unit of
labor input
High productivity leads to high per capita real GDP = high standard of
living

Growth rate - how rapidly real GDP per person grows in a typical year
U.S. real GDP per capita $3,752 in 1870 and $44,260 in 2006; 1.83%
growth rate per year

Improving Productivity and Economic Growth


Capital deepening

process of increasing the


amount of capital per worker (labor productivity)
Increase investments in physical capital and
human capital

Saving and Investment


Saving and Investment - a society can change the amount of capital
it has through S&I
Every dollar saved is a dollar made available for investing
Invest in capital today will raise future productivity tomorrow
(capital deepening)

Technological Progress
Technological progress producing more output without

using more inputs


Technological Knowledge understanding how to make
the best use of available resources

Population and Government


Population Growth can affect productivity and economic growth

Ex. India, large population and low productivity, equals low wages and
quality of life
Ex. United States, consistent population growth, high capital growth,
leads to high quality of life
Government government policies can affect a nations economic growth
Increased taxes, reduces disposable income which takes money away
from private investing

Natural Resources
Natural resources - inputs provided by nature that are converted into the
production of goods and services
Provided by nature, such as land, rivers, and mineral deposits
U.S. large supply of land and agriculture, Middle East oil supplies
Renewable Resources - are natural resources that can be reproduced.
Forest, wood, paper, energy (wind, solar power), etc.
Nonrenewable Resources - are natural resources that are limited in
supply.
Coal, gold, oil, etc.

47

Essential Question #1
What are the 4 components of GDP?

C Consumption

I Investment

G Government

NX Net Exports

Essential Question #2
What are the excluded components of GDP?

Intermediate Products

Second-Hand Sales

Non-Market Transactions

Underground Economy (Black Market)

Cash Transfers

Essential Question #3
How do you calculate Real GDP and Nominal GDP?
dollars
prices

Nominal is calculated using current _________(________),


not
inflation
accounting for_____________
base

Real is calculated using a _________


years prices (dollars),
inflation
constant
accounting for__________,
keeping price_____________.

Essential Question #4
What are the characteristics of the 4 phases of the business cycle?

Peak GDP has reached its highest point

Contraction GDP begins to decline (recession)

Trough GDP has reached its lowest point

Expansion GDP begins to rise again

Essential Question #3
What does per capita GDP measure; what does it indicate about a
societys standard of living?

Average income for each person.

Higher the per capita GDP, the higher the standard of living.

Essential Question #4
How can a country improve its standard of living/per capita GDP??

Productivity, saving and investing, technology, natural resources,


population control and stable government

Bananas and Backrubs Online Quiz

1. Calculate the nominal GDP for each year, then calculate the GDP deflator for
each year using year 1 as a base year.
Year 1:
Bananas - $5
Backrubs - $30
Total GDP - $35

Year 2:
Bananas - $10
Backrubs - $42
Total GDP - $52

Year 3:
Bananas - $20
Backrubs - $54
Total GDP - $74

VIS Terms Due Tuesday 10 27


1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

Macroeconomics
Gross Domestic Product
Nominal GDP
Real GDP
Expansion
Peak
Contraction
Trough
Recession
Depression
Stagflation

Binder Check Due Tuesday 10-25


1.
2.
3.
4.
5.
6.
7.
8.
9.

Daily Assignment Ch. 12 Sec. 1


Video Questions - Google
DAQs pg. 302
Ch. 12 Guided Reading Wksht.
Population Growth + GDP Wksht.
Section 2 DAQs pgs. 312-316
Study Guide Chapter 12
C.W. Puzzle Ch. 12
VIS Terms Ch. 12

GDP Country Comparison


Country

2011 GDP

Population

USA

$14,582,000,000,000

307,007,000

China

$5,879,000,000,000

1,338,000,000

Japan

$5,498,000,000,000

127,000,000

Germany

$3,286,000,000,000

82,372,000

France

$2,562,000,000,000

64,800,000

UK

$2,250,000,000,000

62,970,000

Brazil

$2,090,000,000,000

195,000,000

Mexico

$1,634,000,000,000

113,550,000

Russia

$1,479,000,000,000

142,860,000

Canada

$1,474,000,000,000

33,680,000

Per Capita GDP

Population Rank

Per Capita GDP


Rank

Use the first table to fill in the information, including population.


1. Describe how population might affect GDP.
2. What does Per Capita GDP tell you about a country's economy and standard of
living?
4. Based on the table above, which country has the highest standard of living? The
lowest?
5. Why are the citizens of the countries with high Per Capita GDP more likely to have a
better quality of life than other countries?

Practice Ch. 12

a. Consumption
b. No, because that transaction is a cash transfer,
not a purchase of currently produced capital
goods.
c. It means that imports exceed exports.

Practice Ch. 12

a. 100, 200, 400


b. 100, 100, 100

Practice Ch. 12

a.
b.
c.
d.
e.
f.
g.
h.

700 (1.00 x 200 = 200) + (10.00 x 50 = 500) = 700


700 (1.00 x 200 = 200) + (10.00 x 50 = 500) = 700
770 (1.00 x 220 = 220) + (11.00 x 50 = 550) = 770
720 (1.00 x 220 = 220) + (10.00 x 50 = 500) = 720
100 (700/700 x 100 = 100)
107 (770/720 = 1.069 x 100 = 107)
107 100/100 = .07 x 100 = 7%
770 700/700 = .10 = 10%, Percent increase in prices
= 7%, therefore most of the increase was due to
prices.

Practice Ch. 12

a. Year 1, because the deflator = 100.


b. Prices rose 20 percent and real output stayed
the same.
c. Prices stayed the same and real output rose 25
percent.

Application - Calculating GDP


Product Quantity
Consumption Automobiles
6
Replacement Tires
10
Shoes
55

Price (per 1 unit)


Dollar Value
$20000 _______________________________
$60 _______________________________
$50 _______________________________

Investment

Machinery
Computers
Cell Phones

10
30
45

$8000 ____________________________
$1500 ___________________________
$200 ___________________________

Government

Single Family
Multifamily
Commercial

3
5
1

$75,000 _________________________
$300,000 _________________________
$1,000,000 _________________________

Net Exports

*Figure this
amount by taking
Exports minus
Imports*

Total
Exports
$10,000
Total
Imports
$20,000

___________
- __________
=
___________ _________________________

Total Gross Domestic Product = _______________________________

Extra Credit
1. The country of Terrorville produces two goods: footballs and basketballs. The
following is a table showing the prices and quantities of output for three years.

2. What percentage of real GDP comes from consumption?

Study Guide Ch. 12


1.

Macroeconomics

2.

Gross Domestic Product

3.

A system of statistics and accounts that keeps track of production,


consumption, saving and investment.

4.

C spending by consumers
I spending by businesses ,
G spending by government,
NX spending by foreigners, minus imports

5.

Market Dollar Value market selling prices of goods and


services.
Final goods and services only value of final goods and
services (excluding intermediate products).
Within a countrys borders only measures production
within a countrys borders.

6.

Intermediate products, which are inputs used to produce final goods


and services.
Second-hand sales - refer to the sales of used goods.
Nonmarket Transactions transactions that do not take place in the
marketplace (i.e. fixing your car, mowing your lawn, etc.)
Underground Economy illegal activities, gambling, drugs,
prostitution, smuggling, etc.

Study Guide Ch. 12


GDP:

7.

8.
Consumption

Investment

Government

Net Exports

a.

Second-hand sale

b.

Government

c.

Investment

d.

Nonmarket Transaction

e.

Underground Economy

f.

Consumption

g.

Net Exports

h.

Product
Quantity
Intermediate
goods

New home sales


Fast Food Sales
Personal Computers
Tractors
Plane Tickets
Blackberry Phones
Garbage Collection
Newly Hired Agents
Police
*Figure this amount
by taking Exports
minus Imports*

10
12
50
15
10
45
50
500
100
Total
Exports
$10,000
Total
Imports
$20,000

Price (per 1 unit)


$200,000
$10,000
$1,000
$10,000
$90
$400
$5,000
$60,000
$50,000
____10000_______
- ___20000_______
=
____-10000_______

Dollar Value
_________2,000,000___________________
_________120,000___________________
_________50000___________________
__________150,000__________________
__________900__________________
__________18,000_________________
__________250,000________________
__________30,000,000________________
__________5,000,000________________

_________-10000_________________

Total Gross Domestic Product = __________$37,578,900_____________________

Study Guide Ch. 12


9.
10.
11.
12.
13.

14.
15.
16.
a.
b.
c.
d.

Expansion
Peak
Contraction
Trough
Recession
Depression
Stagflation
Phase of Business Cycle:
Contraction
Peak
Trough
Expansion

Study Guide Ch. 12


17.
Contributing Factors

Example of increase in GDP

Example of decrease in GDP

Business Investment

During an expansionary economy,

During acontractionary economy, firms

firms invest in capital goods, this will

invest in capital goods, this will help

help create output and jobs, increase create output and jobs, increase GDP
GDP
Interest Rates and

If interest rates are low, people and

If interest rates are high, people and

Credit

businesses will be motivated to

businesses will be lose the motivation to

borrow, consume and invest

borrow, consume and invest

Consumer Expectations The way that people perceive the

The way that people perceive the

economy can influence consumption, economy can influence consumption, if

External Shocks

if they view it positively they will

they view it negatively they will consume

consume and this will add to GDP

and this will add to GDP

Positive external shocks such finding

Negative external shocks such as war,

a new oil source or if an area

hurricanes, droughts etc. can influence

experiences a great deal of rain

ability to consume and invest

18.
Year

Price of Oranges

Prices and Quantities


Price of Video
Quantity of Oranges
Games

2005
2006
2007

$1
$2
$3

50
100
150

2005
2006
2007

Calculating Nominal GDP


$__1__ per orange ___50___ oranges = $__50_____ $__10__ per video game __5____ video games =$__50_____
$__2__ per orange ___100___ oranges = $__200___ $__15__ per video game __10___ video games =$__150____
$__3___ per orange __150___ oranges =$ __450___ $__20__ per video game __15___ video games =$__300___

2005
2006
2007

Total Market Value for Oranges $___50_____ + Total Market Value for Video Games $ ___50_____ = $____100_____
Total Market Value for Oranges $___200____ + Total Market Value for Video Games $ ___150____ = $____350____
Total Market Value for Oranges $___450____ + Total Market Value for Video Games $ ___300____ = $____750____

2005
2006
2007

Calculating Real GDP (base year 2005 prices)


$__1__ per orange ___50___ oranges = $__50_____ $__10__ per video game __5____ video games =$__50_____
$__1__ per orange ___100___ oranges = $__100___ $__10__ per video game __10___ video games =$__100____
$__1___ per orange __150___ oranges =$ __150___ $__10__ per video game __15___ video games =$__150___

2005
2006
2007

Total Market Value for Oranges $___50_____ + Total Market Value for Video Games $ ___50_____ = $____100_____
Total Market Value for Oranges $___100____ + Total Market Value for Video Games $ ___100____ = $____200____
Total Market Value for Oranges $___150____ + Total Market Value for Video Games $ ___150____ = $____300____

2005
2006
2007

GDP deflator = Nominal GDP/Real GDP 100


Nominal GDP___100_____/ Real GDP ____100___ = ____1_____ 100 = ___100___ or ___NA__ % increase in prices
Nominal GDP___350_____/ Real GDP ____200___ = ___1.75___ 100 = ____175___ or ___75___ % increase in prices
Nominal GDP__750______/ Real GDP ___300___ = ___2.5_____ 100 = ____250___ or __150___ % increase in prices

$10
$15
$20

Quantity of Video Games


5
10
15

Study Guide Ch. 12


19.
20.
21.
22.

23.

24.
25.

9.3 6.7/6.7 = .39 X100 = 39%


$9,300/281 = 33.096 X 1000 = $33096
Capital Deepening
There is an inability to create job
opportunities in the economy, which leads
to a lower standard of living.
If the government increases taxes, this will
put a strain on peoples ability to save
their money, vice versa
Trade Deficit
Technological

Binder Check Due Monday 11 - 14


1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

All about GDP worksheet


Chapter 12 Practice Review
GDP Country Comparison
Ch. 12 Guided Reading
Study Guide Chapter 12
CW Puzzle Chapter 12
VIS Terms
Essential Questions
Daily Tens
Notes
11. Standard Sheet Ch. 7 + 8

http://abcnews.go.com/video/playerIndex?i
d=8228701
http://abcnews.go.com/2020/stosselvideo
http://abcnews.go.com/video/playerIndex?i
d=6770261
http://abcnews.go.com/video/playerIndex?i
d=8221074

Daily Assignment Questions


Chapter 12 Section 1 (pgs. 301 303)
1.

What does macroeconomics study? (57)

2.

Break down the carefully worded


definition of gross domestic product, by
explaining each of the following.
a)

Dollar value

b)

Final goods and services

c)

Produced within a countrys borders

3.

What are intermediate products used


for?

4.

What are the four categories of final


goods and services?

5.

How does the expenditure approach


calculate GDP?

6.

Describe the difference between durable


and nondurable goods.

7.

How does the income approach work?

Application - Calculating GDP


Product Quantity
Consumption Automobiles
6
Replacement Tires
10
Shoes
55

Price (per 1 unit)


Dollar Value
$20000 _________120,000________________
$60 _________600_____________
$50 _________2,750__________________

Investment

Machinery
Computers
Cell Phones

10
30
45

$8000 _________80,000__________________
$1500 _________45,000_________________
$200 _________9,000_________________

Government

Single Family
Multifamily
Commercial

3
5
1

$75,000 _________225,000________________
$300,000 _________1,500,000_______________
$1,000,000 _________1,000,000_______________

Net Exports

*Figure this
amount by taking
Exports minus
Imports*

Total
Exports
$10,000
Total
Imports
$20,000

___________
- __________
=
___________ _________-10,000________________

Total Gross Domestic Product = _________2,972,350______________________

Prices and Quantities


Price of Honey

Year

Price of Milk

Quantity of Milk

2005
2006
2007

$1
$1
$2

100
200
200

2005
2006
2007

Calculating Nominal GDP


___1_____ per milk ___100_____ milk = __100_____
__2____ per honey ___50____ honey =___100_____
___1_____ per milk ___200_____ milk = __200_____
__2____ per honey ___100____ honey =__200______
___2_____ per milk ___200_____ milk = __400_____
__4____ per honey ___100____ honey =__400______

2005
2006
2007

Total Market Value for Milk ___100_______ + Total Market Value for Honey ___100_______ = ____200________
Total Market Value for Milk ___200_______ + Total Market Value for Honey ___200_______ = ____400________
Total Market Value for Milk ___400_______ + Total Market Value for Honey ___400_______ = ____800________

2005
2006
2007

Calculating Real GDP (base year 2005)


___1_____ per milk __100______ milk = __100_____
___2____ per honey ___50____ honey =__100______
___1_____ per milk __200______ milk = __200_____
___2____ per honey ___100____ honey =__200______
___1_____ per milk __200______ milk = __200_____
___2____ per honey ___100____ honey =__200______

2005
2006
2007

Total Market Value for Milk ___100_______ + Total Market Value for Honey ___100_______ = ____200_________
Total Market Value for Milk ___200_______ + Total Market Value for Honey ___200_______ = ____400_________
Total Market Value for Milk ___200_______ + Total Market Value for Honey ___200_______ = ____400_________

2005
2006
2007

GDP deflator = Nominal GDP/Real GDP 100


____200________/____200________ 100 = _____100________ or ____N/A________ % increase
_____400_______/____400________ 100 = ____100_________ or ___0_________ % increase
___800_________/___400_________ 100 = ___200__________ or ___100_________ % increase

$2
$2
$4

Quantity of Honey
50
100
100

Paper Airplane Simulation


With a group of 4, form a company that builds paper airplanes. As a group
experiment and agree on a simple design. Your airplanes must be made of only
one half of an 8 x 11 piece of paper (8 x 5 ). Next choose a company name.
This will be printed on both sides of the planes fuselage. Each member should
practice making an airplane before beginning the activity.
The Simulation will consist of three shifts, during each shift the groups workers will
manufacture airplanes. All workers must cease work immediately after each shift.
Shift 1
Materials:
1 pair of scissors
1 Pencil
2 desks
10 sheets of paper
Procedure: Each worker must
work alone to make his or her
airplanes. The materials must
be shared. After the shift, the
quality control manager (who
cannot participate) should
inspect the airplanes and
record the number of airplanes
completed.

Shift 2
Materials:
1 pair of scissors
1 Pen/Pencil
2 desks
10 sheets of paper
Procedure: Before this shift
begins, work as a group to
break the production process
into a series of steps.
- Cutting the paper
- Folding the paper
- Writing the Company Name
Record the results.

Shift 3
Materials:
Using the costs listed on the
productivity chart, decide as a
group what additional capital
goods you will purchase. You
have $10.00. You may acquire a
maximum of 6 desks, 3 scissors,
40 sheets of paper and 10
pencils. (You can also hire a new
laborer QCM)
Procedure: Before this shift
begins, determine the most
efficient manner of producing
the airplanes

Paper Airplane Simulation Reflection Questions


1.
2.
3.
4.
5.
6.

7.
8.
9.

What shift were you most productive?


Why were you most productive during that
shift?
What effect did investing in additional capital
goods have on productivity?
What product allowed your group the most
growth?
When did your group experience diminishing or
negative returns?
If instead of making an additional capital
investment in shift 3, what would have happened
if the company laid off one or two workers, how
would that have affected production?
How did your group exhibit capital deepening?
(pg. 320)
How could new technology have affected your
productivity? (pg. 322)
How could foreign trade have been positive for
your company? (pg. 322)

GDP Simulation
Year

Price

Quantity Sold

Total GDP

GDP Simulation
Year

Price

Quantity Sold

Total GDP

10

10

10

20

20

40