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
Why is Gross Domestic Product important to a nation?
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
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.
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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
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
Factors of Production
 4 Factors of Production
 Natural Resources
 Labor
 Capital
 Entrepreneurs- a risktaking person who starts a
new business, introduces a
new product, or improves a
management technique
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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)
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)
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)
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
GDP Per Capita
 GDP Per Capita- Gross
Domestic Product on a perperson 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
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
Economic Flow and Economic Growth
Lesson 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?
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
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
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
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
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State universities charge tuition
Government also use taxes and
borrowing to raise money
Foreign Sector
 Foreign Sector- made up of
all the people and businesses
in other countries
 They act in both U.S.
markets
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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.
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
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When the economy grows, the
nation’s wealth and standard of living
increases
Additional resources and increased
productivity are needed for economic
growth
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
Capitalism and Free Enterprise
Lesson 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?
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
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
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
Six Features of Free Enterprise
 Competition- the struggle that goes on between buyers
and sellers to get the best products at the lowest prices
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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
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Gives people incentive to work hard, save, and invest
People tend to take better care of things they own
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