NATIO

NAL DEBT

AND

GROSS DOMESTI

C

PRODUCT

BUSINESS E

CONOMICS

What you should learn today:

• Define recession• Be able to express the entire GDP

equation, and what each component stands for

• Identify a final good• Identify an intermediate good• Identify inflation

World Debt as of Nov 12, 2014

NOVEMBER 12, 2014

How U.S.Government Gets & Receives Money

Circular Flow of Money

EXPANSION AND CONTRACTION: THE BUSINESS CYCLE

A recession is a recurring period of decline in

total output, income, employment, trade,

Usually lasting from six months to a year, and marked by widespread contractions in many sectors of the economy.

Expansions can range in duration from several months to several years.

Double Dip Recession

Recession + recovery + recessionSlowdown in demand for goods & serviceLayoffs & spending cutbacks

THE U.S. RECESSIONS SINCE 1981

GROSS DOMESTIC PRODUCT

• The market value of all final goods & services produced within a country in a given period of time

GROSS DOMESTIC PRODUCT

GDP = C + G + I + NXC - Consumption

G – Government Spending

I – Investments

NX – Net Exports

ConsumptionConsumption- Durable goods 

• (jewelry, laptop, baseball glove)

- Nondurable goods• (food, gasoline, clothing)

- Services • (medical expenses, mechanic,

landscaper)

Government SpendingGovernment Spending- Defense

- Postal Service

- Roads

- Schools

- Doesn’t include social security or unemployment benefits

InvestmentsInvestments• Residential

• Single-family homes• Multi-family homes• Rental Property

• Non-Residential• Equipment (machines and tools)• Business Plants

• Business Inventories

Net ExportsNet Exports• Exports – Imports = NX

• Ship $128,000 worth of corn to Columbia

• Receive $115,000 worth of coffee beans from Columbia

• Net Exports?

Transfer Payments $54

Interest Income $150

Depreciation $36

Wages $67

Gross Private Investment $124

Business Profits $200

Indirect Business Taxes $74

Rental Income $75

Exports$118

Net Foreign Factor Income $12

Government Purchases$156

Household Consumption$304

Imports $95

GDP•Gross Private Investment- $124•Government Purchases- $156•Household Consumption- $304•Exports- $118•Imports- $95

124+156+304+(118-95)=?

GDP=$606GDP=$606

GROSS DOMESTIC PRODUCT

Final Goods•Intended for the end user

Intermediate Goods•Components of ingredients in the production of other goods

Tangible goods•DVDs, mountain bikes, soda

Intangible goods•Dry cleaning, concerts, cell phone service

Final Goods and ServicesManicuresBreadCruise missileNew factoryDresses Increase in automobile inventory

Intermediate Goods Window glass in new automobiles

Lumber in a new house

Screws used in a cruise missile

Flour for making bread

Cloth for making dresses

FINAL V. INTERMEDIATE GOODS

GDP GOODS & SERVICES AT FINAL DESTINATION

Who buys haircuts, bread & dresses?Who buys cruise missiles?Who buys a new factory or builds up an inventory of unsold products such as automobiles?

Households, families, individuals

Government Businesses

UNITED STATES GDP BY SECTOR

UNITED STATES TOP TRADING PARTNERS

ARUBA TRADING PARTNERS