Lesson: What's in GDP?
Content Standards: Voluntary National Content Standards in Economics standard 18
Students should read the article "The ABCs of GDP" from the Spring 2009 Extra Credit. In this activity, students will determine what components of a country's spending make up its GDP, and then they compute real and nominal GDP for a fictional economy. Finally, students investigate alternate measures of a country's standard of living.
Concepts: Components of GDP, real GDP, nominal GDP, standard of living
Objectives: Students will
- identify examples of components of GDP,
- differentiate between real and nominal GDP, and
- identify the advantages and disadvantages of alternate measures of a country's standard of living.
- Writing implement for each student
- Calculator for each student
- Copy of "The ABCs of GDP" article for each student
- Copy of student handout for each student
- Copy of teacher answer key
- LCD projector and computer for PowerPoint presentation
- (Optional) Presentation software or other presentation materials for creation and delivery of student presentations
- Ask students how they, their parents, or others earn income. [Answers will vary.]
- Ask students how income is measured. [In the United States, income is usually measured in dollars.]
- Tell students that just like themselves or people they know, a country also has an income. It is all the income of all the economic participants added together. Tell students that the most common way of measuring a nation's income,
or alternatively, measuring a nation's spending is gross domestic product, or GDP.
- Distribute a copy of "The ABCs of GDP" to each student and ask them to read the article.
- After they are finished reading, ask students:
- What is GDP? [The output in dollars (or another currency) of final goods and services produced in a country in a given year.]
- What does GDP measure [Total output, or the health and growth of a nation's economy.]
- Which is more useful when comparing a nation's income from one year to the next, nominal or real GDP? [Real GDP because it adjusts for inflation.]
- Why should one not rely exclusively on GDP to understand the health of a nation's economy? [GDP does not take into account some social phenomena, for example, income distribution.]
- What is the role of the National Bureau of Economic Research (NBER)? [The NBER committee dates business cycle activity, such as a recession.]
- Show and explain PowerPoint slides 1–11. See the notes section for additional information to share with students.
- Ask students to complete Activity 1 on the student handout. Review answers using teacher answer key.
- Show and explain PowerPoint slide 12.
- Ask students to complete Activity 2 on the student handout. Review answers using teacher answer key.
- Show and explain PowerPoint slide 13.
- Review with students that GDP cannot tell us everything about the standard of living in a country, or a nation's wellbeing.
- Conduct Activity 3 with students. Split students into groups of three and assign each group one of the alternate measures of standard of living. Give students time and resources to gather information on their assigned measure, such as what it measures, what is included, how it is calculated, and what the measure's advantages and disadvantages are. Give students time to deliver their presentations to the class.
Closure Review with students:
- What is GDP and what does it measure? [GDP is the output in dollars or another currency of final goods and services produced in a country in a given year. It measures output, or the health and growth of a nation's economy. It is a
measure of a nation's economic growth and its economic wellbeing.]
- How is GDP computed? [It adds together all the spending by all sectors in an economy—that is, a nation's consumption, investment, government spending, and net exports.]
- Why is GDP not the best measure of standard of living? [Real GDP tends to increase as a nation's standard of living improves, however, GDP does not capture some very important social measures. For example, other factors that can give insight into a population's wellbeing are population growth, the literacy rate, the mortality rate, and life expectancy.]
Assessment: Students complete Activity 4 in the student handout. Review answers using the teacher answer key.
By Sara Messina, economic and financial education specialist, Jacksonville Branch