Review
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7.
What are the three basic economic questions?
How are these questions answered in a command economy?
Product differentiation is characteristic of what market
structure?
“Good weather leads to an increase in Blueberry crop”
Demand or supply/ increase (right) or decrease (left)
What economic problem does the U.S. share with 100% of all
nations in the world?
Describe equilibrium on a supply and demand graph.
Show a PPC curve with a point representing inefficient use
of resources.
EQ: How do we measure a nation’s wealth?
EQ: How do we

measure a nation’s
wealth?
Intro Video
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Definition of GDP
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Gross Domestic Product
 “GDP is the total market value of all final goods and
services produced within a country in a given period of
time.”
 Activity:
 Breakdown the following parts of the definition. What does
each mean?
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total market value
Of all
final goods and services
within a country
in a given period of time
With a partner, what is
included in GDP?
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Gross STATE Product
California, it is often said, would be the world’s sixth- or seventh-largest economy if it was a
separate country. Actually, that would be the eighth, according to this map, as France (with a GDP
of $2,15 trillion) is #8 on the aforementioned list.
Texas’ economy is significantly smaller, exactly half of California’s, as its GDP compares to that of
Canada (#10, $1,08 trillion).
Florida also does well, with its GDP comparable to Asian tiger South Korea’s (#13 at $786
billion).
Illinois – Mexico (GDP #14 at $741 billion)
New Jersey – Russia (GDP #15 at $733 billion)
Ohio – Australia (GDP #16 at $645 billion)
New York – Brazil (GDP #17 at $621 billion)
Pennsylvania – Netherlands (GDP #18 at $613 billion)
Georgia – Switzerland (GDP #19 at $387 billion)
North Carolina – Sweden (GDP #20 at $371 billion)
Massachusetts – Belgium (GDP #21 at $368 billion)
Washington – Turkey (GDP #22 at $358 billion)
Virginia – Austria (GDP #24 at $309 billion)
Tennessee – Saudi Arabia (GDP #25 at $286 billion)
Missouri – Poland (GDP #26 at $265 billion)
Louisiana – Indonesia (GDP #27 at $264 billion)
Minnesota – Norway (GDP #28 at $262 billion)
Indiana – Denmark (GDP #29 at $256 billion)
Connecticut – Greece (GDP #30 at $222 billion)
Michigan – Argentina (GDP #31 at $210 billion)
What is NOT included
in GDP?
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The components of GDP
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GDP is the sum of the following:
 Consumption (C)
 Investment (I)
 Government Purchases (G)
 Net Exports (NX)
Y = GDP = C + I + G + NX
 Why does GDP = Y? Think back, way back….
Remember this?
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–Every transaction has a
buyer and a seller.
–Every dollar of spending by
some buyer is a dollar of
income for some seller.
Components of GDP
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 Consumption (C):
 The spending by households on goods and services, with
the exception of purchases of new housing.
 Investment (I):
 The spending on capital equipment, inventories, and
structures, including new housing.
 Government Purchases (G):
 The spending on goods and services by local, state, and
federal governments.
 Does not include transfer payments such as social security
 Net Exports (NX):
 Exports minus imports.
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Summary - C, I, G, or
NX, or NC
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You buy a movie ticket
Purchase of a new house
You cut your lawn
You buy a new Toyota made in Japan
Tuition for college
Apartment rent
The government pays a social security check
Purchase of a share of Microsoft stock
A stay at home mom cares for her children
You sell concert tickets that you already purchased
A farmer purchases a tractor
You sell your house that you lived in for two years
The U.S. exports minerals to Russia
General Motors purchases Ford
Your telephone bill
GDP Scenarios
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 Come up with 10 (2 each) scenarios that increase or
decrease the GDP
 C, I, G, NX, and one that doesn’t count in GDP
 5 volunteers
 Each volunteer holds their sign up if it increases their
component of GDP or down if it decreases.
Review
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 What is the GDP equation?
 What is the definition of nominal GDP?
 What is the definition of real GDP?
 What is the general rising of prices called?
 What is the purpose of the GDP deflator?
 What is the largest component of U.S. GDP?
What is the percentage
breakdowns for the U.S.
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What does this say
about our economy?
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Real vs Nominal GDP
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 Nominal GDP values the production of goods and
services at current prices.
 Real GDP values the production of goods and
services at constant prices.
Nominal GDP
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Year
# of hot
dogs sold
Price
# of
Price
hamburge
rs sold
2005
100
$1
50
$2
2006
150
$2
100
$3
2007
200
$3
150
$4
Nominal
GDP
What is NOMINAL
GDP for each year?
REAL GDP
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REAL GDP?
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Year
# of hot
dogs sold
Price
# of
Price
hamburge
rs sold
2005
100
$1
50
$2
2006
150
$2
100
$3
2007
200
$3
150
$4
Real GDP
What is REAL GDP for
each year using 2005 base
year?
GDP Deflator
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Nominal GDP
GDP deflator =
 100
Real GDP
What is the GDP deflator for
2005, 2006, and 2007 using our
previous example?
GDP Deflator (cont).
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Real GDP20XX
Nominal GDP20XX

 100
GDP deflator20XX
Using the GDP Deflator for 2007, show
the calculations to find real GDP. Did it
match your original calculation for 2007
GDP?
Summary
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Year
P of milk
Q of
milk
P of
honey
Q of
honey
2005
(base)
$1
100
$2
50
2006
$1
200
$2
100
2007
$2
200
$4
100
Nominal
GDP
Real
GDP
Deflator
• Did economic well-being rise more in 2006 or 2007? Explain?
Review
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What are the keys to capitalism?
1.
2. Law of Demand: A a decrease in
______________would cause an increase in quantity
demanded?
3. What type of business organization has limited
liability?
4. What is entrepreneurship?
5. Minimum wage is an example of a price _________.
This type of government interference in the market
causes a _____________.
6. Market clearing price is another term for
___________.
Is GDP a good measure
of economic well-being?
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 GDP is the best single measure of the economic wellbeing of a society.
 GDP per capita (per person) tells us the income and
expenditure of the average person in the economy.
 Higher GDP per person indicates a higher standard
of living.
 GDP is not a perfect measure of the happiness or
quality of life, however.
What does GDP not tell
us?
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 Some things that contribute to well-being are not
included in GDP.
 The value of leisure.
 The value of a clean environment.
 The value of almost all activity that takes place outside
of markets, such as the value of the time parents spend
with their children and the value of volunteer work.
Some perspective…
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3 CD’s/3 CM’s
Summary
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 3 CD’s about GDP
 3 CM’s about GDP