Chapter 19: The American Economy

Measuring GDP

• Measuring GDP
• -Remember that GDP is a monetary measure.
• -A monetary measure is helpful if we are to compare the number of goods and services produced and get a meaningful idea of their relative worth.
• -If GDP is higher than the previous year, then the economy is expanding.
• -If it is lower, then economy is declining.
• -GDP is an important measure of *standard of living- the quality of life based on the possession of necessities and luxuries that make life easier.
• Quantity vs. Quality
• -Remember that GDP measures quantity. It does not accurately reflect improvements on the quality of products.

Section 2: Economic Activity and Productivity

• Section 2: Economic Activity and Productivity
• Circular Flow of Economic Activity
• 4 Sectors:
• 1. Consumer
• 2. Business
• 3. Government
• 4. Foreign

1st Sector:

• 1st Sector:
• The Consumer Sector
• -Consumers make up one group of economic decision-makers, but there are others – the business, government, and foreign sectors.
• -Economists use this model, called a *circular flow diagram to illustrate how the market system works.
• -Consumers earn their income in *factor markets – the markets where productive resources are bought and sold.

2nd Sector:

• 2nd Sector:
• The Business Sector
• *Product Markets- markets where producers offer goods and services for sale.

3rd Sector:

• 3rd Sector:
• The Government Sector
• -Is made of all three levels of govt. – federal, state and local.
• -Historically, the government is the second largest sector in our economy, purchasing approximately 20% of our GDP.

• Federal/National

• State

• Local