CHAPTER 12:

“ECONOMIC INDICATORS & MEASUREMENTS”

QUARTER 4
LESSON OBJECTIVES:-

1. Define GDP & describe how it is measured

2. Explain how GDP has certain limitations
3. Identify other national income accounting measures
 ECONOMICS INDICATORS &
MEASUREMENTS
• Macroeconomics: is the study of the economy as a whole and how major
sectors of the economy interact. Macroeconomists analyze the economy
using “National Income Accounting” , statistical measures that track the
income , spending , and output of a nation.

• The most essential measurement is gross domestic product “ GDP”.

• GDP growth rate is an important indicator of the economic performance

of a country. 

• The GDP: is the market value of all final goods and services produced
within a nation in a given period.
 THE SPECIFICATIONS OF GDP “ GROSS
DOMESTIC PRODUCT”
1) A good or service must be final rather than intermediate. for example , the
fabric used to make a shirt is an intermediate good; the shirt itself is a final
good.

2) the good or service must be produced during the time period , regardless
when it is sold. For example , cars made this year but sold next year would be
counted in this year’s GDP.

3)The good or services must produced within the country’s borders. For example
, products made by U.S in foreign countries are not included in the U.S GDP.
 CALCULATING THE “ GROSS DOMESTIC
PRODUCT”
 CALCULATING “GDP”

• To calculate GDP, Economists use the expenditure approach through grouping national spending on
final goods and services according to The 4 Sectors Of The Economy.

• The 4 sectors of the economy include : “Consumption , Investment , Government Spending & Net
Exports”

• Economists determine consumption with letter “C” , investment with letter “I” , government spending
with letter “G” & net exports with letter “X”.

• To calculate GDP, economists add all the 4 sectors ( conomy’s expenditures) together:

GDP = C + I + G + X
1. HOUSEHOLD’S EXPENDITURE
“CONSUMPTION”
• Consumption includes all spending by households on “ Durable or Non- durable”
goods and services.

• Durable goods: goods that last for a relatively long time, such as refrigerators , cars &
appliances.

• Non- Durable goods: goods that last a short period of time , such as food , laundry
detergents & clothing.

• Service: spending money for obtaining intangible goods such as customer service ,
internet bundle & watching movie.
2. INVESTMENT EXPENDITURE “I”
• Investment, also referred to as fixed investment is the amount of capital goods added by a country in a
given year which includes new construction and purchases of such capital goods as equipment,
machinery, and tools.

• The other is inventory investment. This category, also called unconsumed output, is made up of the
unsold goods that businesses keep on hand.
3. GOVERNMENT SPENDING “G”

• Government spending simply measures the amount of money spent by the government in any given year.
includes all the expenditures of federal, state, and local governments on goods and services. Examples include
spending for defense, highways, and public education.

• Government spending on transfer payments, such as social security and unemployment benefits, is not
included. These payments allow individuals/households to buy goods and services, and these are counted as
consumption.
4. NET EXPORTS “X” ( TOTAL EXPORTS – TOTAL
IMPORTS)

•  if an economy is driven by internal consumption and has less dependency on foreign markets, then the
GDP will be less affected by a slowdown in other markets.

• The GDP counts only net exports— the value of U.S. exports minus the value of U.S. imports.
 TWO TYPES OF GDP

• Economists calculate two forms of GDP—Nominal and Real.

• The most basic form is Nominal GDP which states GDP in terms of the current value of goods and services.
• However prices tend to increase over time , adding dollars to GDP without adding value to the nation’s output.

• To cut off the “rising in prices factor” that affect the increase of GDP, Economists use “Real GDP”, which is
nominal GDP adjusted for changes in prices.

• Real GDP is an estimate of the GDP if prices were to remain constant from year to year. To find real GDP,
economists compare nominal GDP to a base year.
 WHAT GDP DOES NOT MEASURE?

• Although GDP is measuring how well the economy is performing , it doesn’t measure all output.

• GDP doesn’t measure the follows:-

• - Non Market Activities

• - Underground Activities
• - Quality of life
 NON-MARKET ACTIVITIES

• Nonmarket Activities: are services that have potential economic

value but are performed without charge.

• Some productive activities are not included in the GDP , for

example housework ( cooking , cleaning , chilcare) provided by
housemakers is an example of a productive activity that is not
measured by GDP.
 UNDERGROUND ECONOMY

• Underground Economy: describes market activities that go unreported because they are illegal or because
those involved want to avoid taxation.

• For Example: drug dealing , smuggling and selling stolen goods.

• Estimates suggest that the underground economy would make up 8 to 10 percent of the U.S. GDP.
 QUALITY OF LIFE

• GDP does not show how goods and services are distributed or the quality of living.

• For example, U.S. has the largest GDP of any country, still GDP does not measure people in U.S. who are
living in poverty.

• Other examples, environmental pollution, water contamination and resource depletion are excluded.
GDP is not reduced by pollution and toxins that are produced in the process.
CHAPTER 8: “ TYPES OF BUSINESS
ORGANIZATIONS”

QUARTER 4
 BUSINESS ORGANIZATION

• Every business begins with a person who has an idea about how to earn money
and the drive to create business organization.

• Business Organization: is an enterprise, business or project that produces goods or

provides services.

• The purpose of most business organizations is to earn a profit. They achieve this
goal by producing the goods and services that best meet consumer’s wants and
demands.
BUSINESS ORGANIZATIONS ARE
CLASSIFIED AS FOLLOWS:-
 1. SOLE PROPRIETORSHIP

• The most common type of business organization in the United States is the sole
proprietorship.

• A sole proprietorship is a business organization owned and controlled by one person.

• Example, Beauty salons are frequently operated by one owner.

 Advantages
1. Easy to enter or exit the market :
To start up a “ sole business” , the business owner needs only a
license , site permit and a legally registered name. If the owner
wanted to get out of the business, he would find that process
easy as well. As long as he has settled all his bills.
2. Few Regulations: establishing and operating a sole business
is simple. Business owner has few regulations to abide by like
treating his employees according to various labor laws.
3. Freedom and Control: business owner is the boss , makes
all the decisions and does so quickly without having to check
with partners or boards of directors. Having complete control
and seeing his ideas come to life without any disputes.
Disadvantages
1. Sole Proprietors Are Fully Responsible: The owner bears
full responsibility for running the business.
2. Limited Funds: At start-up, The Business owner has a certain
and limited capacity to raise capital. Raising capital to start up
business alone needs huge amount of money. Business owner
under this form of business “ Sole “ with no other partners to
share with him would be obstacle.
3. Limited Life: sole proprietorships have limited life. If he
leaves , dies or retires the business, the business ceases to
exist.
 2. PARTNERSHIPS

• A partnership is a business co-owned by two or more partners who agree on how responsibilities, profits, and
losses of that business are divided.

• There are several different types of partnerships—general partnerships, limited partnerships, and limited
liability partnerships—but they are all run in the same general way.

• In a general partnership partners share management of the business and each one is liable for all business
debts and losses.

• Limited Partnership, a partnership in which at least one partner is not involved in the day-to-day running of
business and is liable only for the funds he or she has invested.
 Advantages
1. Easy to enter or exit the market :
To start up a “ Partnership” , the partners would find that
process easy as well. As long as they has settled together all
business bills.
2. Few Regulations: Business owners would not be burdened
with a host of government regulations. They would enter into a
legal agreement spelling out their rights and responsibilities as
partners.
3. Access to Resources ( excess of funds or capital):
partnerships generally make it easier to get bank loans for
business purposes. A greater pool of funds also makes it easier
for partnerships to attract and keep workers.
Disadvantages
1. Potential for Conflict: sometimes disagreements can
interfere with running the business that they lead to the closing
of the business.
2. Limited Life: partnerships have limited life. When a
partner dies, retires, or leaves for some other reason, or
if new partners are added, A new partnership
arrangement must be established if the enterprise is to
continue.
3. Unlimited Liability : Each Partner is personally
responsible for the full extent of the partnership’s debts
and other liabilities. So they risk having to use their
personal savings, and even having to sell their property,
to cover their business debts.
 3. CORPORATIONS

• A corporation is a business owned by stockholders, who own the rights to the company’s profits
but face limited liability for the company’s debts and losses.

• Corporations issue bonds to shareholders, A bond is a contract issued by a corporation that promises
to repay borrowed money, plus interest, on a fixed schedule. These individuals acquire ownership
rights through the purchase of stock, or shares of ownership in the corporation.

• For Example, suppose a large company sells a million shares in the form of stock. If you bought
10,000 shares, you would own 1 percent of the company. If the company runs into trouble, you
would not be responsible for any of its debt. Your only risk is that the value of your stock might
decline. If the company does well and earns a profit, you might receive a payment called a
dividend, part of the profit that the company pays out to stockholders.
 Advantages
1. Access to Resources ( excess of funds or capital):
As a corporation, they have better opportunities for
obtaining additional money. Besides borrowing from banks,
F&S can raise money by selling more stock or by issuing
bonds.
2. Professional Managers: Having professionals in charge of
financial and sales matters will probably lead to higher
profits.
3. Limited Liability: stockholders / shareholders are liable
only for the money they paid for their stock.
Disadvantages
1.Start-Up Cost and Effort: the process of setting up a
corporation more time-consuming, difficult, and expensive.
The paperwork they have to prepare and file with the state
government is extensive.
2. Heavy Regulations: Corporations must prepare annual
and issue quarterly financial reports for stockholders. All of
these regulations help ensure that corporations are run for
the benefit of the shareholders.
3. Double Taxation:
As officers of the company, they are well aware of the taxes
on profits that the corporation must pay.
As stockholders, they know that their dividend income, paid
out of the company profits, is also taxed.