Agenda Wed 3/21 & Thurs 3/22
 QOD #21: Eenie-meanie-minie-moe
 Stock Game Updates
 QOD # 22: What Counts
 GDP
 Homework

P. 316 # 1-6 & p 373 #1-6
QOD #21: Eenie-meanie-minie-moe
 Some might advise that in order to be a wise investor, one
should tend to avoid complex investments that they do
not fully understand.
 Explain why you agree or disagree with this advice.
 What would be the advantage to ignoring the advice?
 What would be the advantage to heeding the advice?
QOD #22: What Counts
 President Obama has given you the task of figuring out how
much the American economy produces in a year.
 How would you go about doing this?



Do you count production from foreign firms in America and/or
American firms producing in other countries?
Do you count every item produced or use a statistically significant
sample?
 Pick a list of things and estimate based off that
 Would not result in accidental results but truly representative of
the population
Is the answer for Obama based on the number (#) of goods produced
or the dollar ($) amount of these goods?
 Why is it important to know this information?
Measuring Economic Performance
 Gross Domestic Product (GDP): is the total
market value of all final goods and services
produced annually in an economy.
 To calculate the GDP:
 # of good × price, then add dollar amounts
(100 × $60) + (1,000 × $3) + (1,000 × $4) = $13,000 (GDP)
What Counts?
 GDP counts only final goods to avoid double counting.
Why Final Goods?
 A final good is a good sold to its final user.

Ex: When you buy a hamburger at a restaurant, the
hamburger is a final good. You are a final user.
 Intermediate good is not counted in the GDP.
 When computing GDP, economists count only final goods
and services.
 When economists count both final and intermediate goods
they would be double- counting.
What GDP omits:
 Illegal goods and services
 Legal goods and services for which there is no
record
 Some non-market goods and services
 Sales of used goods
 Stock and other financial transactions
 Government transfer payments
GNP v GDP
 GDP is discussed when economists, government officials,
and member of the public talk about overall performance of
the economy.
 GNP measures the total market value of final goods and
services produced by U.S. citizens wherever they reside.
 GDP is the total market value of final goods and services
produced within the borders of the U.S. by US citizens and
noncitizens.
 GNP ≠ GDP
Measuring GDP
4 parts
 Consumption (households) [Market basket = CPI]
 Clothes, cars, food
 Investment (businesses)
 Tools, machines, factories
 Government (government)
 Office supplies, tanks, weapons
 Export (goods bought by foreigners outside of the country)
 Cars, wheat
 Import (goods bought by Americans from other countries)
 Computers, cars, electronics
GDP = C + I + G + EX - IMP
Is Every Good That Is Produced Also Sold?
 Yes, the government statisticians who measure GDP
assume that everything that is produced is purchased
by someone
GDP v. Quality of Life
Per capita GDP =
__GDP__
population
2009 List
Consumer Price Index
 The consumer price index (CPI) is a measure of the average




price of goods purchased by a household
It measures the average ‘market basket of goods’ of the urban
consumer
The most widely cited price index.
Energy dropped a stunning 16.9% while transportation
dropped 9.7% in November 2008.
January 2009 1st increases since July 2008
U.S. GDP Gross Domestic Product
Past Trend Present Value & Future Projection
Billion US Dollars. Annual Rate Seasonally Adjusted.
GDP in the US
 For the third straight year, the pace of economic activity in
the U.S. economy slowed as real gross domestic product
(GDP) grew by 2.2 percent in 2007 compared to 2.9 percent
a year earlier and 3.1 percent the year before that.
 Real growth in the economy weakened sharply in the fourth
quarter as the economy expanded by only 0.6 percent at an
annualized rate.
 Projections for 2020
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Current news
 At the end of 2008, the CPI fell three months in a row.
 In January 2009, it increased by .3%.
 The largest single month jump ever recorded (in 61
years) was in November at -1.7%.
 This was a concern because deflation was a hallmark of
the depression. Normally lower prices, especially gas
prices makes us happy.
 Things the government chose to do:
 lower the mortgage rates for homes
 Bail out programs (Fed money to state govt & private
business).
 Government subsidies to get people to work
 Did it work? Is it still working?
American Debt
 Americans are at the end of the rope with debt.
 $13.8 trillion in household debt outstanding in 2008, up
$2 Trillion since 2005.
 Of the $13.8 trillion, $10.5 trillion was for mortgages and
most of the balance for credit purchases.
 Will we have as much household debt as our annual GDP?
 2008 GDP = $14.3 trillion, estimated
 GDP is contracting (slowing) so it may be the case that there
will be more debt than actual GDP.
 Household debt decreased for the 1st time in 3rd quarter of
2008
References
 Arnold, R (2001). Economics in our times, 2nd edition.
Chicago, IL: National Textbook Company .
 http://www.international.gc.ca/eet/trade/sot_2008/sot-2008-en.asp
 http://www.mybudget360.com/wp-content/uploads/2008/08/gdp.jpg

http://mwhodges.home.att.net/nat-debt/debt-nat-b.htm