GDP (pp. 130-132)

• know the definition of GDP
  • "the total MARKET VALUE
    
  • of all FINAL goods and services
    
  • PRODUCED in an economy in one year."
• know why we use the "market value", or the monetary value ($$$) to measure RDO
• know why they include only "final goods and services"
  • avoiding double counting / what is double counting?
  • what are final goods?
  • what are intermediate goods? why are they NOT added to GDP?
• GDP measures PRODUCTION therefore "GDP Excludes Nonproductive Transactions"

Expenditures Approach (p. 132-135)

• Be able to calculate GDP from a table of data like that on pp. 147-148 (question #4a) using the expenditures approach
  
  • GDP = C + I + G + Xn
  • HINT: this is important

Income Approach (pp. 136-138)

• Understand how summing up the income earned by the factors of production (resources) can give us a measure of GDP which is production. (See p. 132 "Two Ways of Looking at GDP: Spending and Income.)
• Know the difference between gross investment and net investment

Other National Accounts (pp. 138-139)

• Understand and be able to calculate NDP (question #4a pp. 147-148)
• Know and be able to calculate NI (national income)
  NI = wages + rent + interest + profits
  (profits = corp. profits + proprietor's income)
• Know definition of NI (income EARNED by the resources)
• Know definition of PI (income RECEIVED)
• Know definition of DI (SPENDABLE income)

Nominal and Real GDP (pp. 141-143)

• You must be able to convert nominal GDP to real GDP and know the differences between these concepts
  [Be able to fill in the blanks on Table 7.5, page 141, and study guide p. 82, multiple-choice questions # 23-27]
  
• nominal GDP = SUM (P current year x Q current year)
  
• real GDP = SUM (P base year x Q current year)
  
• Why use real GDP?
  • To measure RDO. It is possible for nominal GDP to increase even though RDO decreased. How?
    • ­ nominal GDP a little  =  SUM (­Palot x  Q a little)
    • Q is RDO
      
• real GDP = nominal GDP / price index
  

Shortcomings of GDP (pp. 143-144)

• This is important
  
• Know whether each of these cause GDP to OVERSTATE or UNDERSTATE Economic Well-Being
  1. non-market transactions are not counted (GDP understates)
  2. leisure is not add as a positive (GDP understates)
  3. improved product quality but same price (GDP understates)
  4. the composition and distribution of output
     (e.g.. produce many guns and drugs: ­GDP but ¯Well-Being (GDP overstates)
  5. per capita output (GDP understates well-being in countries with small populations and overstates in countries with large populations)
  6. GDP and the environment (GDP overstates)
  7. the underground economy not included (GDP understates)
  8. resource depletion not accounted for (GDP overstates)
  9. noneconomic sources of well-being (GDP understates)
• We will also cover some of this in the lecture on Measures of Development (LDCs)

Chapter 8 - Economic Growth
Study Guide, especially multiple-choice questions: pp. 92-94, #1 2, 3, 6, 7, 8, 9,10, 13, 15,17, 18, 20, 25

Economic Growth (pp. 149-151)

• "Two Definitions" - We'll use 2 DIFFERENT definitions:
  • Ch. 1 definition (see pp. 15-16) - an increase in the ABILITY to produce a larger total output.
    
    • This is "Economic Growth" on our 5Es chart.
      
    • On our graphs this is shifting the PPC outwards and an increase in AS.
  • Ch. 8 definition - an increase in output (real GDP).
    
    • This is "Full Employment" and "Productive Efficiency" on our 5Es chart.
    • On our graphs this is going from a point within the PPC to a point closer to the PPC or an increase in AD
  • Our textbook's two definitions on pp. 149 are different:
    1. "an increase in real GDP occurring over some time period" includes BOTH of the two definitions we use in class (see above).
    2. "an increase in real GDP per capita occurring over some time period" is an increase in real GDP PER PERSON. GDP per capita is GDP divided by the population.

Modern Economic Growth (pp.152-155)

Institutional Structures That Promote Growth (pp. 155-156)

Determinants of Growth (pp. 152-153)

• "Supply Factors" help to increase the ABILITY to produces goods and services.
  
  • This shifts the AS curve to the right
  • and SHIFTS the production possibilities curve outwards (Ch. 1 definition).

   

• "Demand Factors" and the "Efficiency Factor" help ACHIEVE the potential level of output.
  
  • This shifts the AD to the right
  • and does not shift the production possibilities curve (Ch. 8 definition).

Production Possibilities Analysis (pp. 157-158)

• Know the difference between:
  
  • production,
    
  • productive efficiency,
    
  • and productivity

    

Accounting for Growth (pp. 158-162)

The Rise in the Averaqge Rate of Productivity Growth (162-165)

Is Growth Desirable and Sustainable? (165-167)

Chapter 22W - Growth and the LDCs
I use the term "Less Developed Countries" or "LDCs" for the world's poor countries and "More Developed Countries" or "MDCs" for the world's richer countries. The authors of our textbook use the term "developing countries" or "DVCs" for the poor countries and "Industrially Advanced Countries" or "IACs" for the richer countries.

Study Guide, pp. 256-257: especially questions: #1, 2, 4-8, 12, 16, 19

The Rich and the Poor pp. 2-4 (Measures of Economic Development)

• for a online review of the Measures of Economic Development see:
  http://www.harper.cc.il.us/mhealy/g101ilec/intro/eco/ecomea/ecomeafr.htm

Obstacles to Economic Development (pp. 4-11)

• How does "use their existing supplies of resources more efficiently" and " expand their available supplies of resources" fit into our 5Es concept?
• Pay close attention to the role of population growth. How does population growth affect the growth in GDP PER CAPITA?
• "Low Labor Productivity" and "Capital Accumulation" provides good examples to reinforce concepts also covered in chapter 9 (Economic Growth)

The Vicious Circle (pp. 11-12)

• more on population growth

Role of Government (pp. 12-13)

Role of Advanced Nations (pp. 14-18)

• Think about what might help the LDCs (DVCs) the most: TRADE or AID?