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.
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
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
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
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
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
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
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
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