Warm-Up

Class Reflections: We have just completed our first midterm …and each of you has a good feel of this class.

What has been the most challenging aspect of this class? What do you plan on doing up until end the semester to achieve or maintain a grade you will be satisfied with?

Warm-Up

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GDP & GNP (Unit 5)

Gross Domestic Product and

Gross National Product

What’s the Difference???

• GNP(Gross National Product)

-Total $ value of all final goods and services

produced annually by American residents,

whether these resources are located in the U.S. or

abroad

• GDP(Gross Domestic Product)

-Total $ value of all final goods and services

produced annually within the boundaries of the

U.S., whether by Americans or Foreigners

GNP or GDP?Determine whether each of the following falls under GNP or GDP. Explain your rationale!!!1. Mexico builds a shoe company in Texas.2. Miss Stack moves to Brazil and becomes an

Economics teacher abroad.3. Due to high labor costs in the U.S., Nike moves

its entire company to China.4. Microsoft decides to build a computer factory

on the corner of Inglewood and El Segundo. 5. Come up with an example of GDP yourself and

write it in as #56. Come up with an example of GNP yourself and

write it in as #6

Measuring GDP/GNP

• Two Ways To Measure GDP/GNP:

1.) Expenditure Approach

2.) Flow of Income Approach (Circular

Flow Model)

1. Expenditure (Spending) Approach

GDP/GNP=C+I+G+Xn

C+I+G+Xn• Consumption (C): Household spending. Makes up two-

thirds of GDP spending. [the biggest spending sector of the economy]

• Investment (I): Spending by Businesses on machinery, factories, equipment, tools, and construction of new buildings.

• Government (G): Spending by all levels of government on goods and services.

• Net Exports (X-M) = Exports minus imports: Spending by people abroad on U.S. goods and services (exports, or X) minus spending by people in the U.S. on foreign goods and services (imports, or M)

Practice Problem!!! Using the Expenditure Formula, solve for GDP/GNP!!!Calculate GDP/GNP when:C=500 millionI=150 millionG=300 millionX=200 millionM=300 million

The Expenditure Approach

• Step 1: For each of the scenario, determine which category of spending it falls under.

• Step 2: Then, write whether or not GDP/GNP increased or decreased using arrows.

• Step 3: Create a tree map -- pull out a blank piece of paper and fold into 4 equal columns and label your top branch ‘The Expenditure Approach’ and the others appropriately.

• Step 4: Cut and glue into the correct column!!!• Step 5: If time, draw a symbol next to each.

2. Flow of Income ApproachGDP/GNP=W+I+R+P

1. Households provide businesses with resources (land, labor, capital, entrepreneurship)

2. In return for these resources, businesses pay $$$ in the form of Wages, Interest, Rent and Profit.

You add up all the money income derived from the production of this year’s outputs.

Shortcomings of GDP

• There are FOUR shortcomings of GDP that make it an imperfect counting system of economic well-being –

we still use it but we need to be aware of it’s imperfections

• 1. Production Excluded• 2. Human Costs & Benefits• 3. Treatment of Leisure Time• 4. Unproductive Production that Goes into GDP