Understanding Economic Growth - Real GDP

1.         Ask:  What happens when the economy “grows”?

Elicit student ideas about growth – more goods and services,
larger population, higher incomes, etc.

Provide this definition of economic growth:  An increase of per capita gross domestic
product (per capita GDP).

2.         Explain the
basic concepts of per capita GDP

Per capita:  per person (population)

GDP: measure of a
country's overall economic output. It is the market value of all final goods
and services made within the borders of a country in a year.

Per capita GDP:
The nation’s total output divided by the population

3.         Ask: What
happens if a nation’s output (GDP) increases and its population also increases
by the same percentage?

Example:

Population increases 5 percent in one year, 1,000,000 to
1,050,000 (+50,000)

GDP increases 5 percent in 1 year, $1,000,000,000 to $1,050,000,000
(+$50,000,000)

In year 1, the per capita GDP is: $1,000 ($1,000,000,000
divided by 1,000,000)

In year 2, the per capita GDP is: $1,000 ($1,050,000,000
divided by 1,050,000)

If the population and the output grow at the same rate, the
“real” increase is zero.

For there to be real
growth, each individual has to have more output, income or consumption of goods
and services.

4.         Ask: What
happens if the nation’s output increases, but there is inflation?

Generalize that “inflation” (a rise in the price level) does
not crate real growth.

Example:

The nation’s GDP increases from $1,000,000,000 to
$1,050,000,000 ($50,000,000)

The increase in the nation’s GDP is 5 percent.

The nation’s price level (CPI) increases from 100 to 105 – 5
percent.

The nation’s population remains constant (no change).

Real GDP and per capita GDP remain the same after adjusting
for inflation – the 5% price rise)

Summarize:  “Real”
growth must be greater than the rate of inflation for people to have more
purchasing power, and output of goods and services.

5.         Go to the
Bureau of Economic Analysis web page: www.bea.gov.

Briefly introduce the Bureau of Economic Analysis: http://www.bea.gov/about/mission.htm

Briefly review the types of data available from the BEA: http://www.bea.gov/newsreleases/rels.htm

6.  Go to the most
recent BEA news release on real GDP growth. 
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Review the news release and define the key terms.

Gross domestic
product (GDP).  The market value of
goods and services produced by labor and property in the United States,
regardless of nationality; GDP replaced gross national product (GNP) as the
primary measure of U.S. production in 1991.

Real: adjusted
for inflation.

Q1, Q2, Q3 or Q4:  Designation for the first quarter
(January-March) of the year. The year is divided into four quarters.  GDP is reported quarterly.   Each quarterly GDP estimate are made (and
revised) three times over a three month period. For example:  The results for Q1 (January-March) are
announced in the following April, May and June.

7.         For classroom lessons on real GDP growth,
go to www.EconEdLink.org.   Search the grade 9-12 lessons for “Focus on
Economic Data: Real GDP Growth.”   The
“Focus on Economic Data” lessons are published monthly from September through
May, each school year.

8.         To compare
the gross domestic products, real GDPs, and per capita GDPs of different
countries, go to the CIA World Factbook, “Guide to Country Comparisons.”: https://www.cia.gov/library/publications/the-world-factbook/rankorder/rankorderguide.html

The CIA data is adjusted to “purchasing power parity” or PPP.  PPP means that the purchasing power of
different currencies is equalized for a given basket of goods.  The CIA figures are stated in U.S. dollars.