CHAPTER 10

Economic Performance
SECTION 1: Gross Domestic Product SECTION 2: Business Cycles SECTION 3: Economic Growth

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SECTION 1

Gross Domestic Product

Objectives:
 How do economists calculate gross domestic product?  What are some of the limitations of gross domestic product?  What other statistics do economists use to measure the economy?
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SECTION 1

Gross Domestic Product

Output expenditure model:
 used to calculate gross domestic product  sum of the output produced by personal consumption expenditures (C), gross investment (I), government purchases of goods and services (G), and net export of goods and services (X-M)
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SECTION 1

Gross Domestic Product

Limitations of gross domestic product:
 initial figures often inaccurate  does not include nonmarket activities or the underground economy  does not accurately measure a nation’s wellbeing

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SECTION 1

Gross Domestic Product

Other statistics economists use to measure the economy:
 gross national product  net national product  national income  personal income  disposable personal income
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SECTION 2

Business Cycles

Objectives:
 What are the four phases of the business cycle?  What factors influence the business cycle?  What are the three leading indicators used to determine the current phase of the business cycle and predict where the economy is headed?
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SECTION 2

Business Cycles

The four phases of the business cycle:
 expansion  peak  contraction or recession  trough

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SECTION 2

Business Cycles

Factors that influence the business cycle:
 levels of business investment  availability of money and credit  public expectations about the future  changes in the world’s economy or political climate

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SECTION 2

Business Cycles

Predicting the business cycle:
 leading indicators—anticipate the direction of the economy  coincident indicators—tell economists that the economy has shifted  lagging indicators—help economists predict the duration of economic upturns and slumps
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SECTION 3

Economic Growth

Objectives:
 Why is economic growth important?  What are the requirements of economic growth?  What is the relationship between economic growth and productivity?

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SECTION 3

Economic Growth

Importance of economic growth:
 to maintain a high standard of living  to compete effectively in the global marketplace  to provide the resources to deal with domestic problems

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SECTION 3

Economic Growth

Requirements of economic growth:
Increasing  natural resources  human resources  capital resources  entrepreneurship  productivity levels
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SECTION 3

Economic Growth

Relationship between economic growth and productivity:
 Economic growth requires either more inputs or an increase in the productivity of these inputs.

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CHAPTER 10

Wrap-Up
1. Explain the difference between nominal GDP and real GDP. Why is real GDP a better measure to use when examining changes in GDP over time? 2. Explain the difference between personal income and disposable income. 3. Identify and explain the four phases of the business cycle. 4. How are economic growth and productivity related? 5. Why is real GDP per capita used to measure economic growth?
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