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What Does the Nation Consume?

Key Economic Concepts:

• Consumers
• Goods
• Gross Domestic Product (GDP)
• Intermediate Good
• Services
• Stock Market

Description:

This lesson will focus on what the nation consumes and how that is measured by Gross Domestic Product (GDP). In the United States, the goods and services produced for household consumption account for about two-thirds of total output.

Lesson Objectives:

Students will:

• Define gross domestic product as the value, expressed in dollars, of all final goods and services produced in a year.
• Explain the difference between intermediate and final goods.
• Categorize consumer spending as durables, non-durables, or services.

Introduction:

This lesson will focus on what the nation consumes and how that is measured by Gross Domestic Product (GDP). In the United States, the goods and services produced for household consumption account for about two-thirds of total output measured by GDP.

Process:

Read the Weekly Reader article called, "Happy Day Update!"

For a picture of Alan Greenspan go to:
www.nndb.com/people/164/000023095/ ^[1]

1. What government reports do traders say led to the mid-October surge in stock prices?
   [Gross Domestic Product and the Employment Cost Index.]
2. What warnings does Alan Greenspan have about the U.S. economy?
   [The expansion cannot continue indefinitely. The economy might be growing too fast.]
3. How might an understanding of Gross Domestic Product make investors better off in the stock market?
   [Answers vary. Stockholders can hedge against risk by avoiding stocks whose values are tied to business cycles.]

Gross Domestic Product (GDP) is the value, expressed in dollars, of all final goods and services produced in a year. Remember that goods are things that we use, touch and see and services are activities people do for us. The production of these goods and services provides jobs for people in the economy. The income people earn is then used to consume goods and services. 

Final goods are the goods and services sold to consumers. Intermediate goods are things that are produced and then used in the production of other goods and services. For example, the denim produced in mills is used in the production of jeans. In this example, denim is an intermediate good and the jeans are a final good.

Activity 1

This interactive activity allows you to identify intermediate and final goods.

Now think of three of your own examples of intermediate and final goods.

Activity 2

Now that we know that GDP is the value of all final goods and services produced in a year, we need to know the current value of GDP. Go to the Gross Domestic Product section of this site: www.bea.gov/national/index.htm#gdp ^[2] .
Scroll down on the page to Table 3 to find and report the current value of GDP. [1999-$7,059,500,000,000.00]

To understand what makes up GDP, we are going to study the types of goods and services that make up a large part of the trillions of dollars of the GDP.

On a piece of paper, make a list of all of the final goods and services you used from the time you woke up yesterday until you went to bed last night. Items should not be listed more than once. Be sure to include final goods easily overlooked. For example, how was breakfast prepared? (Microwave, toaster, refrigerator) Did you turn on the light in the bathroom to shower? (electricity) Did you use soap, shampoo, toothbrush, and toothpaste?

Look over the list you have just created and think about the large number of goods and services you rely on to satisfy your wants each day. Who buys these items? How does your family obtain most of the goods and services it wants?

Spending by households is called consumption or consumer spending because the products provide direct satisfaction to consumers. When we measure GDP, consumer spending represents the largest category. Spending for consumer goods and services makes up over two-thirds of all spending.

Activity 3

In GDP, the durables category refers to consumer goods that will last longer than three years. Examples are bikes, CD player, automobiles. Can you think of some more durables?

The nondurable category includes consumer goods expected to last less than three years. Examples are shoes, hamburgers, and pencils. Can you think of some more nondurables?

Also remember that services are activities people do for us.

For extra practice in categorizing consumer spending as durables, nondurables, or services complete the following interactive activity.

1. Visit to the dentist

A. Durable
B. Nondurable
C. [Service]

2. Computer

A. [Durable]
B. Nondurable
C. Service 

3. Gasoline

A. Durable
B. [Nondurable]
C. Service

4. Toys

A. Durable
B. [Nondurable]
C. Service

5. Car insurance

A. Durable
B. Nondurable
C. [Service]

5. Jewelry

A. [Durable]
B. Nondurable
C. Service

6. Magazines

A. Durable
B. [Nondurable]
C. Service

7. Clothing

A. Durable
B. [Nondurable]
C. Service

8. Dishwasher

A. [Durable]
B. Nondurable
C. Service

9. Airline transportation

A. Durable
B. Nondurable
C. [Service]

Conclusion:

Links Used:

1. ^{^} "Alan Greenspan" - (www.nndb.com) Provides information on the former chairman of the United States Federal Reserve Board, Alan Greenspan.
2. ^{^} "National Economic Accounts" - (www.bea.gov) This particular site focuses on whats new about Federal Recovery Programs and BEA Statistics.

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