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Chapter Introduction
Section 1:
Measuring the
Nation’s Output and Income
Section 2:
Population and
Economic Growth
Section 3:
Poverty and the
Distribution of
Income
Visual Summary
Chapter Menu

Have you ever thought about what it means when someone is described as “successful”? Is the person wealthy, happy, or well known? Work with a partner and develop a list of the qualities or characteristics for your definition of successful . Share your list with the class and listen carefully to what the other students think. Is there a consensus among your classmates? Read Chapter 12 to learn more about how economists assess the success of a nation’s economy by measuring its growth and performance.
Chapter Intro 1

Economists look at a variety of factors to assess the growth and performance of a nation’s economy.
Chapter Intro 2

Chapter Intro-End

Section Preview
In this section, you will learn how we measure the output and income of a nation.
Section 1-Preview

Content Vocabulary
• macroeconomics
• gross domestic product (GDP)
• intermediate products
• secondhand sales
• nonmarket transactions
• underground economy
• base year
• real GDP
• current GDP
• GDP per capita
• gross national product
(GNP)
• net national product (NNP)
• national income (NI)
Section 1-Key Terms

Content Vocabulary
(cont.)
• personal income (PI)
• disposable personal income (DPI)
• household
• unrelated individual
• family
• output-expenditure model
• net exports of goods and services
Academic Vocabulary
• excluded • components
Section 1-Key Terms

Is it really possible for a factory to keep track of its total output when it produces a variety of product lines?
A.
Yes
B.
No
C.
Not sure
A. A
B. B
0% 0%
A B C
Section 1

Measuring the Nation’s Output and Income
• Macroeconomics deals with the economy as a whole in determining a nation’s growth rate.
• GDP is one of the most important macro measures.
Section 1

GDP —The Measure of National Output
GDP measures national output.
Section 1

GDP —The Measure of National Output
(cont.)
• Gross domestic product ( GDP) — measures final output each year; is estimated every three months and revised after that.
Estimating Total Annual Output
Section 1

GDP —The Measure of National Output
(cont.)
• Items excluded from GDP
– Intermediate products
– Secondhand sales
– Nonmarket transactions
– Underground economy
Estimating Total Annual Output
Section 1

GDP —The Measure of National Output
(cont.)
• GDP must be adjusted for inflation.
• Constant prices in a base year are tracked for this purpose.
– Real GDP
– Current GDP
Current GDP and Real GDP
Section 1

GDP —The Measure of National Output
(cont.)
• Economists calculate GDP per capita to determine how the output of one country compares to another.
Profiles in Economics:
John Kenneth Galbraith
Section 1

GDP —The Measure of National Output
(cont.)
• GDP has limitations.
– GDP tells us nothing about composition of output.
– GDP tells little about the impact of production on quality of life.
– Some GDP is produced to control activities with little utility.
Section 1

GDP —The Measure of National Output
(cont.)
• GDP is a measure of voluntary transactions and therefore an indicator of our overall economic health.
The Global Economy & YOU
Section 1

Why is GDP the single most important economic statistic compiled?
A.
GDP changes can influence national elections.
B.
Measures economic health overall
C.
Illustrates production’s impact on quality of life
D.
Indicates conditions of world economy
A
0%
A. A
B. B
0%
C
0%
D
Section 1

GNP —The Measure of National Income
National income can be measured in a number of different ways.
Section 1

GNP —The Measure of National Income
(cont.)
• GDP has two sides.
– Represents output
– Represents equal amount of income
Section 1

GNP —The Measure of National Income
(cont.)
• Measures of national income
– Gross national product (GNP) focuses on total income rather than output.
– Net national product (NNP)
– National income (NI)
– Personal income (PI)
– Disposable personal income (DPI)
Section 1

Which measure of income shows the actual amount of money consumers are able to spend?
A.
Personal income
B.
National income
C.
Disposable personal income
0%
A. A
B. B
0%
A B C
Section 1

Economic Sectors and Circular Flows
The production of output generates income which flows through different sectors of the economy.
Section 1

Economic Sectors and Circular Flows
(cont.)
• Income generated by production flows to businesses, government, and consumer sectors.
Circular Flow of Economic Activity
Section 1

Economic Sectors and Circular Flows
(cont.)
• The largest sector in the economy is the household or consumer.
– Unrelated individual
– Family
Section 1

Economic Sectors and Circular Flows
(cont.)
• Business or investment sector
– Proprietorships, partnerships, and corporations
Section 1

Economic Sectors and Circular Flows
(cont.)
• Government or public sector
• Foreign sector
Section 1

Which of the following sectors does not have a specific source of income?
A.
Consumers
B.
Government
C.
Foreign
D.
Business
A. A
B. B
A
0%
B
D. D
0%
D
Section 1

The Output —Expenditure Model
The output-expenditure model is used to explain aggregate economic activity.
Section 1

The Output —Expenditure Model
(cont.)
• The circular flow can be represented by the output-expenditure model .
– GDP = C + I + G + (X – M)
Section 1

The Output —Expenditure Model
(cont.)
• Consumers spend income on goods and services used by households.
• Income that is not spent appears as personal saving and borrowed by the business and government sectors.
Section 1

The Output —Expenditure Model
(cont.)
• Investment sector spends income on labor, factories, equipment, inventories, and other investment goods.
• Government sector spends income on national defense, income security, roads, etc.
• Foreign sector buys U.S. goods that make up our GDP.
• Foreign sector purchases are called net exports of goods and services .
Section 1

What effect do you think the health-care industry has on GDP?
A.
Positive effect
B.
Negative effect
C.
Balances out
0%
A. A
B. B
0%
A B C
Section 1

Section 1-End

Section Preview
We are interested in population because it makes up the economy’s largest sector, the consumer sector, and affects the economic performance of a nation.
Section 2-Preview

Content Vocabulary
• census • infrastructure
• urban population
• baby boom
• rural population
• population pyramid
• center of population
• dependency ratio
Academic Vocabulary
• residence • projected
• demographers
• fertility rate
• life expectancy
• net immigration
Section 2-Key Terms

Do you know how often the
United States conducts a census?
A.
Yes
B.
No
A
0%
A. A
B. B
0%
B
Section 2

Population and Economic Growth
• The U.S. Constitution requires the government to take a census that includes place of residence.
• Official census
– Taken every 10 years
– Used to apportion number of representative that each state elects to
Congress
Section 2

Population in the United States
The country’s population has shifted from a fast-growing, mostly rural population to a slower-growing, mostly urban one.
Section 2

Population in the United States
(cont.)
• Congress permanently established the
U.S. Census Bureau in 1902.
• Census data are presented in a number of ways:
– Urban population
– Rural population
– Household trends
Section 2

Population in the United States
(cont.)
– Regional changes
• Population shift is indicated by the center of population .
– GDP per capita and GNP per capita for comparisons with other countries
Center of Population, 1790 –2000
Section 2

Population in the United States
(cont.)
• If population grows faster than its output, a country could end up with more mouths than it can feed.
• If population grows too slowly there, may not be enough workers to sustain economic growth with more demand on resources.
• Modest shifts in the population can cause major infrastructure problems in the future.
Section 2

What is the most significant impact that population changes have brought about in your area?
A.
Housing prices have increased/decreased.
B.
Traffic congestion has increased/decreased.
C.
Recreation areas have been lost/gained.
D.
Cost of living has increased/decreased.
A
0%
A. A
B. B
C. C
0% 0%
B
D. D
C
0%
D
Section 2

Projected Population Trends
Fertility, life expectancy, and net immigration influence population trends.
Section 2

Projected Population Trends
(cont.)
• Political, community, and business leaders are all interested in population trends.
– Age and gender
• Baby boom
• Population pyramid
• Dependency ratio
Projected Distribution of the Population by Age and Gender, 2010
Section 2

Projected Population Trends
(cont.)
– Race and ethnicity
– Population growth as determined by demographers
• Changes in fertility rates
• Life expectancy
• Immigration and net immigration
Projected Change in U.S. Population by Race and Ethnic Origin, 2000 –2050
Section 2

Projected Population Trends
(cont.)
• Demographics examined here point to a population that is likely to grow more slowly in the future.
• Increases in productivity can offset the negative effects of a declining population growth.
• A larger concern is age composition—as the population matures, there is a greater demand for health-care related products and services along with retirement funds.
Section 2

What is the life expectancy at birth today?
A.
82.1 years
B.
75.9 years
C.
68.4 years
D.
79 years
A
0%
A. A
B. B
B
D. D
0%
D
Section 2

Section 2-End

Section Preview
In this section, you will learn about the factors that contribute to income inequality and the programs that have been implemented to reduce poverty.
Section 3-Preview

Content Vocabulary
• poverty threshold
• poverty guidelines
• Lorenz curve
• welfare
• food stamps
• enterprise zone
• workfare
• Medicaid
• Earned Income
Tax Credit
• negative income tax
(EITC)
Academic Vocabulary
• impact • uniform
Section 3-Key Terms

Are you familiar with the term
“working poor”?
A.
Yes
B.
No
A
0%
A. A
B. B
0%
B
Section 3

Poverty
A portion of the U.S. population lives in poverty, and the gap in the distribution of income is widening every year.
Section 3

Poverty
(cont.)
• Individuals classified as living in poverty have incomes that fall below the poverty threshold .
• Simplified poverty thresholds appear as poverty guidelines and are used to determine eligibility for federal programs.
Poverty Guidelines
Section 3

Poverty
(cont.)
• Economists are interested in how income is distributed among households.
• Lorenz curve —shows how the actual distribution of income varies from an equal distribution.
The Distributed Income
Section 3

In 2006, a household of four with an annual income under what amount would be eligible for certain federal programs?
A.
$23,400
B.
$20,000
C.
$18,500
A. A
B. B
0%
C. C
0%
A B C
Section 3

Reasons for Income Inequality
Lack of education and uneven distribution of wealth are among the reasons for poverty.
Section 3

Reasons for Income Inequality
(cont.)
• Reasons for varied income
– Education
– Wealth
– Tax law changes
– Decline of unions
Section 3

Reasons for Income Inequality
(cont.)
– More service jobs
– Monopoly power
– Discrimination
– Changing family structure
Section 3

Is income inequality specific to the
United States?
A.
Yes
B.
No
C.
Applies only to industrialized nations
D.
Affects all nations
A. A
B. B
A
0%
B
D. D
0%
D
Section 3

Antipoverty Programs
Since the 1960s, the government has experienced modest success with a number of anti-poverty programs.
Section 3

Antipoverty Programs
(cont.)
• Welfare programs designed to help the needy
– Income assistance
– General assistance
• Food stamps
• Medicaid
Poverty in the United States:
Total Number and Rate
Section 3

Antipoverty Programs
(cont.)
– Social service programs
– Tax credits
• Earned Income Tax Credit (EITC)
– Enterprise zones
– Workfare programs
– Negative income tax
Section 3

Antipoverty Programs
(cont.)
• Economic growth by itself is not sufficient to reduce poverty.
Section 3

What can you do to help yourself stay out of poverty?
A.
Get an education
B.
Make wise choices and investments
C.
Work hard
D.
All of the above
A. A
B. B
A
0%
B
D. D
0%
D
Section 3

Section 3-End

National Output and Income Gross domestic product (GDP) measures the nation’s output, while gross national product (GNP) measures the nation’s income.
VS 1

Population Governments count the population and project population trends to plan the use of resources and to prepare infrastructure.
VS 2

Poverty People are described as living in poverty if they live below an income level called the poverty threshold. Poverty has a number of causes, and governments have established some programs to reduce it.
VS 3

VS-End

Figure 1

Figure 2

Figure 3

Figure 4

Figure 5

Figure 6

Figure 7

Figure 8

Figure 9

Figure 10

John Kenneth
Galbraith
(1908 –2006)
• advocated public works funding in The Affluent
Society
• served as economic adviser to five presidents
Profile

Concepts Trans

DFS Trans 1

DFS Trans 2

DFS Trans 3

macroeconomics part of economics that deals with the economy as a whole and uses aggregate measures of output, income, prices, and employment
Vocab1

gross domestic product (GDP) the dollar value of all final goods, services, and structures produced within a country’s national borders during a one-year period
Vocab2

intermediate products products that are components of other final products included in GDP
Vocab3

secondhand sales sales of used goods not included in GDP
Vocab4

nonmarket transaction economic activity not taking place in the market and, therefore, not included in GDP
Vocab5

underground economy unreported legal and illegal activities that do not show up in GDP statistics
Vocab6

base year year serving as point of comparison for other years in a price index or other statistical measure
Vocab7

real GDP gross domestic product after adjustments for inflation
Vocab8

current GDP gross domestic product measured in current prices, unadjusted for inflation
Vocab9

GDP per capita gross domestic product on a per person basis; can be expressed in current or constant dollars
Vocab10

gross national product (GNP) total dollar value of all final goods, services, and structures produced in one year with labor and property supplied by a country’s residents, regardless of where the production take place
Vocab11

net national product (NNP)
GNP less depreciation charges for wear and tear on capital equipment
Vocab12

national income (NI) net national product less indirect business taxes
Vocab13

personal income (PI) total amount of income going to the consumer sector before individual income taxes are paid
Vocab14

disposable personal income (DPI) personal income less individual income taxes
Vocab15

household basic unit of consumer sector consisting of all persons who occupy a house, apartment, or separate living quarters
Vocab16

unrelated individual person living alone even though that person may have relatives living elsewhere
Vocab17

family two of more persons living together who are related by blood, marriage, or adoption
Vocab18

output-expenditure model macroeconomic model describing aggregate demand by the consumer, investment, government, and foreign sectors
Vocab19

net exports of goods and services net expenditures by the foreign sector; equal to total exports less total imports
Vocab20

excluded not counted or included
Vocab21

components parts of something
Vocab22

census complete count of population, including place of residence
Vocab23

urban population those persons living in incorporated cities, towns, and villages with 2,500 or more inhabitants
Vocab24

rural population those persons not living in urban areas
Vocab25

center of population point where the country would balance if it were flat and everyone weighed the same
Vocab26

infrastructure the highways, mass transit, communications, power, water, sewerage, and other public goods needed to support a population
Vocab27

baby boom historically high birthrate years in the
United States from 1946 to 1964
Vocab28

population pyramid diagram showing the breakdown of population by age and gender
Vocab29

dependency ratio number of children and elderly people in the population for every 100 persons in the 18 to 64 working-age bracket
Vocab30

demographer person who studies growth, density, and other characteristics of the population
Vocab31

fertility rate number of births that 1,000 women are expected to undergo in their lifetime
Vocab32

life expectancy average remaining life span in years for persons who attain a given age
Vocab33

net immigration net population change after accounting for those who leave as well as enter a country
Vocab34

residence the place where a person lives
Vocab35

projected calculated as a future outcome
Vocab36

poverty threshold annual dollar income used to determine the number of people in poverty
Vocab37

poverty guidelines administrative guidelines used to determine eligibility for certain federal programs
Vocab38

Lorenz Curve graph showing how the actual distribution of income differs from an equal distribution
Vocab39

welfare government or private agency programs that provide general economic and social assistance to needy individuals
Vocab40

food stamps government-issued coupons that can be exchanged for food
Vocab41

Medicaid joint federal-state medical insurance program for low-income people
Vocab42

Earned Income Tax Credit
(EITC) federal tax credits and cash payments for low-income workers
Vocab43

enterprise zone area free of tax laws and other operating restrictions
Vocab44

workfare program requiring welfare recipients to work in exchange for benefits
Vocab45

negative income tax tax system that would make cash payments to individuals with incomes below certain levels
Vocab46

impact effect
Vocab47

uniform even or consistent
Vocab48

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