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INTRODUCTION This lesson focuses 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. Gross Domestic Product (GDP) is the value, expressed in dollars, of all final goods and services produced in a year. Remember, 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 1. Identify the Intermediate Good: Good Intermediate Final Good Intermediate Final Steel Muffins Automobile Flour Shirt Table Thread Wood 2. Now think of three of your own examples of intermediate and final goods. Intermediate Good Final Good Activity 2 As stated above, the GDP is the value of all final goods and services produced in a year. The current GDP for the Unites states is: GDP in billions of current dollars 2013 16,768.10 2014 (Q3) 17,555.20 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. Item Durable Non-Durable Service Going to the dentist A computer Gasoline Toy Car Insurance Jewelry Magazine Clothing Dishwasher Airline transportation .

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Macroeconomic Theory and Policy Lecture 2: National Income Accounting
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