1.3: Components of Economic Stability
1.3.1: Gross Domestic Product
Read this section, which provides an explanation of Gross Domestic Product. The GDP is the dollar value of goods and services produced in a given country in a year. Please be thorough in answering the following question: what is the significance of GDP as an economic indicator?
1.3.2: Nominal and Real GDP Growth
Module 1 of Introduction to Business, which you read in subunit 1.2, explains GDP. Go back to this reading and focus on the section titled "Economic Growth," which begins on page 55. The United States' high GDP allows Americans to have a high standard of living.
Then, read section 1.6 of Exploring Business to understand more about economic goals and growth. Looking at GDP alone does not give much of an indication of the health of an economy. It is the change in GDP that is relevant. If GDP goes up, the economy is growing. This positive movement is what we want as we leave behind the most recent recession. Complete the exercises at the end of section 1.6.
1.3.3: GDP Per Capita
Carefully review this chart, which compares the GDP per capita of several countries around the world. Note the date of information provided, and compare this to the charts provided on pages 66 through 69 of Introduction to Business. Studying GDP per capita will allow you to compare one country to another. As you review this resource, answer the following questions:
- Why is the U.S. GDP per capita higher than China?
- How is GDP per capita found?
- Why is the U.S. GDP per capita higher than China?
1.3.4: Inflation & Consumer Spending
Read this section for an in-depth look at the relationship between inflation, the economy, and how we spend our money. As you read this material, consider the effect of inflation on your own purchasing power and buying habits. As the rate of inflation increases, there is a decline in your purchasing power as a consumer, but a decrease in inflation and lower prices can also affect what we buy. For example, as gas prices decline, we see an associated decline in the rate of hybrid car purchases. List three ways that inflation might affect your life. Refer to page 70 in Leslie Lum’s Introduction to Business. The graph entitled "Inflation rate" at the top of the page shows the direction inflation has gone from 1914 to 2007. Review this graph and read the text below it. High interest rates can hurt businesses because consumers are less likely to buy when interest rates are high. Additionally businesses find it expensive to purchase equipment and other overhead they may need to prosper.