EconomicsInternational®

Gross Domestic Pizza
by Irena Zaleskiene (Lithuania), Anatoly Venger (Ukraine), Rich MacDonald and Debbie Davis (USA)

LESSON DESCRIPTION

This lesson explores how gross domestic product (GDP) is determined. The major components of GDP are described. Students create and compare GDP pie charts for the countries of Pepperonia and Anchovia.

AGE LEVEL

12-14 years old

CONCEPTS

  • gross domestic product
  • consumer goods
  • investment goods
  • government spending

CONTENT STANDARDS

A nation’s overall levels of income, employment, and prices are determined by the interaction of spending and production decisions made by all households, firms, government agencies, and others in the economy.

BENCHMARKS

Gross Domestic Product (GDP) is a basic measure of a nation’s economic output and income. It is the total market value, measured in dollars, of all final goods and services produced in the economy in one year.

OBJECTIVES

  • Students will define gross domestic product.
  • Students will describe the difference between final and intermediate goods.
  • Students will identify three major spending components used in measuring GDP.
  • Students will give examples of the GDP components.
  • Students will make comparisons of the components of GDP of different countries.

TIME REQUIRED

One class period

MATERIALS

  • transparency of Visual 1
  • one copy of Activities one (1) and two (2), cards cut apart
  • red, blue, and green clay — enough to cover two paper circles, one 8" diameter and one 11½" diameter — about 60% red, 30% blue, and 10% green
  • one 11 ½"-diameter paper circle (representing a pizza pan) marked into a pie graph with one 238º wedge labeled “C” and two 61º wedges with one labeled “I” and one labeled “G”
  • one 8"-diameter paper circle with a 180º wedge labeled “C,” a 144º wedge labeled “G” and a 36º wedge labeled “I”
  • copy of Activity 3 for each student

PROCEDURE

  1. Write the following definition of gross domestic product (GDP) on the board.

    Gross domestic product is the total market value of all final goods and services produced within the borders of a country in one year.

  2. Explain that GDP is measured and calculated as an indicator of the economy’s health. One way that it can be measured is by looking at the purchases of the goods and services produced.
  3. Point out that final goods and services are newly produced goods that have reached their final consumer; that is, they will not be resold to anyone else.
  4. Display Visual 1, explaining that the first list provides examples of goods and services that have reached their final buyer during the year. Ask the following questions.
    1. Who buys haircuts, bread, and dresses?
      (households, families, and individuals)
    2. Who buys cruise missiles?
      (government)
    3. Who buys a new factory or builds up an inventory of unsold products, such as automobiles?
      (businesses)
    4. Using the second list, ask what the word “intermediate” means.
      (in the middle)
    5. Why might window glass used in producing automobiles be called an “intermediate” good?
      (An automobile manufacturer uses the window glass for a car that will be sold to a final buyer, so it is not a final good. It is used to produce the car that will become a final good.)
    6. Have students explain why the other products are intermediate goods.
      (All products are used to produce something else that will be sold to a final buyer.)
  5. Explain that three major components in calculating GDP are household purchases of consumer goods and services, government purchases of goods and services, and purchases of businesses of capital goods (also called investment). (Note to teacher: Another component of GDP is exports minus imports. International trade is not included in this lesson.) Write C, G, and I on the board. Define the three components as follows.
    • C = household purchases of consumer goods and services
    • G = government purchases of goods and services
    • I = purchases of businesses of capital goods, such as factories, tools, and new houses.
  6. Have students categorize the final goods and services listed on Visual 1 according to the three components.
    (Haircuts, bread, and dresses are C — consumer goods and services. A cruise missile is an example of G —government purchases of goods. A new factory and an increase in automobile inventories are examples of I — investment.)
  7. Divide the class into two equal groups, one representing the country of Pepperonia, the other representing the country of Anchovia. Give a card from Activities 1 or 2 to each student in each country. Explain that “parms” is the currency of these fictitious countries.
  8. Have students determine the GDP component (C, G, or I) for their cards. Check for accuracy.
    • Pepperonia: C — compact discs, family minivan, bread, manicures, concerts, butter, doctor’s services, candy bars, apples; I — new factory, increase in toy inventory; G = cruise missile, new roads, police protection
    • Anchovia: C — compact discs, bread, manicures, concerts, doctor’s services, candy bars, butter; I — construction equipment, increase in toy inventory; G — new roads, cruise missile, police protection, education, national parks, state courts
  9. Have each team calculate GDP for the country and then calculate each component’s percentage share of total GDP.
    • Pepperonia: GDP = 150,000 parms where C = 100,000 parms (66%); G = 25,000 parms (17%); I = 25,000 parms (17%)
    • Anchovia: GDP = 75,000 parms where C = 37,500 parms (50%); G = 30,000 parms (40%); I = 7,500 parms (10%)
  10. Give each student a handful of clay of the appropriate color where red is C, blue is G, and green is I. Tell students to create a clay model of the good or service on their cards. When students have completed their creations, have each student stand and show his or her good/service and explain why it is an example of C, G, or I.
  11. Have students assemble in their groups and combine their clay creations to create a pie chart. Hold up the two paper circles and explain that the circles represent GDP. Ask which circle should represent Pepperonia, and have students explain their answers.
    (Pepperonia will receive the 11 ½"-diameter paper circle because it has a higher GDP. The area of the circle represents GDP.)

    Note to teacher: This is convenient time to review Br2 as the area of a circle. The area of the 8"-diameter circle is 3.14159(4)2 = 3.14159(16) = 50.26 square inches. The area of the 11 ½" circle is 3.14159(5.5)2 = 3.14159(30.25) = 95 square inches which is about twice the size of the 8"-diameter circle. Pepperonia’s GDP is twice as large as Anchovia’s GDP — 150,000 parms and 75,000 parms, respectively.

  12. Display the two pie charts. Have students compare them, and draw conclusions. (Pepperonia spends a larger portion (percentage) of its GDP on consumer goods and investment than Anchovia. Anchovia spends a larger percentage of its GDP on government purchases than Pepperonia.)

CLOSURE

Review the main points of the lesson.

  1. What is GDP?
    (Gross domestic product is the total market value of all final goods and services produced within the borders of a country in one year.)
  2. Name the three components of GDP learned in this lesson.
    (consumer goods and services, government purchases of goods and services, and investment goods)
  3. What is the difference between a final and an intermediate good?
    (A final good is a good that has reached its final buyer. An intermediate good, such as steel, is used to produce another good, such as automobiles.)
  4. Give examples of consumer goods and services.
    (clothes, food, furniture, jewelry, dental checkups, dry cleaning)
  5. Give examples of government purchases of goods and services.
    (new roads and bridges, police and fire protection, national defense, education)
  6. Give examples of investment goods.
    (factories, equipment, tools, new houses, changes in inventories)

ASSESSMENT

Assign Activity 3.

Answers:

  1. C = B, C, D, F, G, K, O
    I = H, I, L, N
    G = A, E, J, M
  2. GDP = 121,000 rolas
  3. C = 79,400 rolas (66%)
    G = 25,300 rolas (21%)
    I = 16,300 rolas (13%)

EXTENSION

  1. Explain that the complete definition of GDP includes exports and imports. Exports are added to GDP and imports are subtracted.
  2. Have students search on the Internet to find the Gross Domestic Product for their country and others.

 

 

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