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Quick Quiz


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									            Quick Quiz
    1) What is one of the five measures of
            2) What is another?
   3) What is one of the four sectors of the
            4) What is another?
5) How is personal income (PI) determined?
   What is GDP?
   How does GDP differ from GNP?

   Today we will be examining the different
    measures of a nation’s income
Measuring a Nation’s Income- GNP
   The GDP does include
    production of foreign-
    owned good produced
    in the US, but
    production outside the
       Hence, it is not a proper
        measure of the total
        income earned by
        American citizens!
        Gross National Product ( GNP)
   $ value of all final goods, services, and structures
    produced in one year with labor and property
    supplied by US
   Largest measure of economy’s total income
   Shift from GDP to GNP must:
       1. Add all payments that Americans receive from
        outside the US
       Subtract all payments made to foreign-owned resources
        in the US
                 GNP, continued
   Ex:
       GDP= $7,872
       +payments to Americans=242
       -payments to foreigners=270
       GNP+$7,844 (similar #s; this is usually true for the
        US, but not all nations) WHY do you think so?
              GNP, continued
   Weakness of GNP: says nothing about the
    production taking place in the US, just
    supplied by US Residents- Why is this a

   Why is GDP used as the leading indicator of
    economic health over the GNP?
GDP vs. GNP activity
      Five Measures Biographies
   -What does the measure show?
   -What is added or subtracted to find the
   -To whom would this measure be most
    valuable? Why?
     Economic Sectors and Circular
   The economy is made up of various parts,
    called sectors.
   Sectors receive various components of the
    national income, and the sectors use this
    income to purchase the total output
            Consumer Sector (C)
   Basic unit- Household (all persons who occupy
    a house, apartment or room)
       Broader than a FAMILY
   Unrelated Individual- lives alone or with non
   Why important to the US Bureau of Census?
   Consumer sector receives $ after taxes, etc.
           Investment Sector (I)
   Proprietorship, partnerships, and corporations.
   Brings together the factors of production to
    produce output
   Income is retained earnings and savings
    borrowed from the consumer sector
         Government Sector (G)
   AKA Public Sector
   Includes local, state, and federal levels of
   Receives income from indirect business taxes,
    corporate income taxes, Social Security,
    personal income taxes from the consumer
                  Foreign Sector (F)
   All consumers and producers outside the US
   Does not have a specific source of income
       Represents the dollar value of goods sent abroad
        and the dollar value of goods purchases abroad
            If the two are reasonably close, the foreign sector will
             appear to be fairly small, when there are a large number
             of goods and services being traded
    Output-Expenditure Model
                GDP= C+I+G+F

   Explains and analyzes the performance of the
   Shows how separate sectors of the economy are
   Why are the sectors critical links in economic

   How are each of the sectors used in
    determining the performance of the nation’s
   Write down three
    questions and the
    answers about
    something you learned
    today. You can write
    them in any format-
    true/false, mc, short
    answer, etc
   Write an essay
    comparing GNP and
    GDP as measures of
    economic health and
    performance. It should
    be one typed page,
    double-spaced, tnr, 1-
    inch margins.
                    Price Index
   What are other ways to measure income
    besides GDP and GNP?

   A major problems with GDP- subject to
    distortions b/c of inflation
       Inflation can make output appear to grow w/out
        actually doing so
        Constructing a Price Index
   Price Index- a statistical series that can be used
    to measure changes in prices over time
       Used to reduce inflation
       Specific to product or range of items

       It’s not that difficult to construct a Price Index…so
        how do we do it?
        Construction of Price Index
   1. Choose a Base Year for comparison
   2. Select a MARKET BASKET of goods-
    must remain fixed
       Market Basket= goods representative of the
        purchases that will be made overtime
   3. Prices of each time in market basket are
       Total=prices of the market basket base year and
        valued at 100%
                 Major Price Indices
   1. Consumer Price Index (CPI)
       Reports on price changes on 90,000 items in 364
       Sampled- prices for goods and services taken from
        85 geographical areas
       Complied Monthly by BLS
            Separate indices for 28 selected areas around the
    Major Price Indices, continued
   2. Producer Price Index (PPI)
       Measures price changes received by domestic
        producers for their own output
       Samples 3,000 commodities w/based year 1982
       Reported Monthly through BLS
            Broken down into subcategories
    Major Price Indices, continued
   3. Implicit GDP Price Deflator
       Average level of prices for all goods and services
        in the economy
            Good, long-run indicator of price changes consumers
       Computed quarterly
            Not useful for month-to-month changes in inflation
       Base year 1992
          Real vs. Current GDP
   Current (or nominal) GDP- not adjusted for
   Real GDP- inflation distortions have been
   Write down three
    questions and the
    answers about
    something you learned
    today. You can write
    them in any format-
    true/false, mc, short
    answer, etc
       Study for Quiz tomorrow,
        use the websites under Unit
        IV on the Wiki to track
        price changes over the last
        five years for three items
        that you buy regularly.
        Chart how your income
        (allowance/wages) has
        changed over the five-year
        period. Type a paragraph
        reflecting on your results
        and discuss how you have
        been affected by inflation.

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