Transcript Document 7609145

Principles of Macroeconomics
3250:201
Richard W. Stratton
Administration
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6 graded assignments this week
Homework 03, 04, 05, 06
 Essay 01
 CBT Test 02 (Friday - Monday)
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6 graded assignments next week
Homework 07, 08, 09, 10
 Essay 02
 CBT Test 03 (Friday - Monday)
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Decision Tree
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Economic measurements
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Economic activity
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GDP
Standard of living
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Economic well-being
General well-being
 Cost of living
 Employment
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Gross Domestic Product
GDP a measure of economic activity
 Individually
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Write a definition of Gross Domestic
Product
Groups
Compare definitions, discuss differences
 Identify important components of the
definition
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Gross Domestic Product
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Class (5)
Report definitions
 Important components?
Final goods and services
 What
 How valued
market prices
 Where
within the country
 When
during a given time period (1 year)
 Provide examples of included items.
 Provide examples of excluded items.
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Standard of Living
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How is Standard of living different
from economic activity?
Define – Standard of Living
Adjust for population
Adjust for prices
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Standard of Living
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Household production
Underground economy
Environment
Length of work day (leisure time)
Health and Life expectancy
Justice and Freedom
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Worksheet 03 GDP
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Rate your understanding of the
worksheet scale 5 – 1:
5 – I have it down pat
 4 – I feel confident
 3 – I understood it and could do most of it
 2 – I understood it, but couldn’t do much
of it
 1 – I am lost
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Show distribution on board
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Decision Tree
Focus
on student questions
Review Worksheet 03
Discuss Selected terms
Worksheet 03 GDP
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Share at least one question you have from
chapter 5 and one from the worksheet.
 Compare questions
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Are any in common? If so, list
Can group members help?
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List common unanswered questions
 Share common questions
 Any questions about Essay 01?
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Decision Tree
Focus
on student questions
Review Worksheet 03
Discuss Selected terms
Decision Tree WS03
MC
questions
Flow identification
GDP Data
Standard of living
Worksheet 03
Return
Q1
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Suppose the U.S. government pays $1
billion to Saudi Arabia for crude oil. Saudi
Arabia uses the $1 billion to purchase
planes made in Washington by Boeing.
This series of transactions causes an
increase in government purchases of
goods and services
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A. and an increase in GDP.
B. but no increase in GDP.
C. and an increase in net exports of goods and services.
D. and a decrease in net exports of goods and services.
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Worksheet 03
Return
Q2
 One reason the total sum of all five income
categories does not equal GDP is that
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A. GDP values goods and services at market
prices, while the income approach values them
at factor cost.
B. GDP values goods and services at retail
prices, while the income approach values them
at wholesale cost.
C. taxes are generally larger than subsidies and
the depreciation of capital is negligible.
D. GDP does not include depreciation, which is
part of the five income categories.
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Worksheet 03
Return
Q3
 Nominal GDP increases
A. only if total output increases.
 B. only if prices increase.
 C. if either prices and/or total output
increase.
 D. only if the productivity of resources
increase.
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Worksheet 03
Return
Q4
 If prices have increased since the
base period, then
A. real GDP is smaller than nominal GDP.
 B. real GDP is larger than nominal GDP.
 C. real GDP is equal to nominal GDP.
 D. there is no way to adjust nominal GDP
so that it equals real GDP.
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Worksheet 03
Return
Q5
 Joe usually takes his dirty laundry home on
weekends to use his parents’ washer. However,
this week he spends $8.00 at the local
Laundromat. Joe’s use of the Laundromat
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A. increases Joe’s leisure time, thus it increases GDP.
B. decreases the valued add by Joe’s parents’ home
production, thus it decreases GDP.
C. substitutes Joe’s spending for his parents’ home
production, thus GDP will remain the same.
D. increases Joe’s consumption, thus it increases GDP.
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Worksheet 03
Return
Q6
 A new technology is discovered which
results in all new cars producing 50
percent less pollution. Which of the
following is true?
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A. GDP will increase to reflect the fact that the
air we breathe is cleaner.
B. GDP will increase if there is an increase in
the production cost of the car.
C. GDP increases anytime pollution is reduced.
D. GDP will decrease.
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Worksheet 03
Return
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Developing the Circular Flow diagram
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Class – Rotate
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Identify and describe each flow
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Circular flow Figure 5.1 Return
3
5
1
2
12
6
4
7
8 9
10
11
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Circular flow Figure 5.1 Return
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Worksheet 03 - Expenditures
Data item
2003 Nominal Value
[Billions of dollars]
2003 Real Value
[Billions of dollars]
Consumption expenditures
Gross private domestic investment
Government purchases
Gross exports
Gross imports
Net exports
Citations
Return
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Worksheet 03 - Expenditures
Data item
2003 Nominal Value
[Billions of dollars]
2003 Real Value
[Billions of dollars]
Consumption expenditures
7,760.9
7,355.6
Gross private domestic investment
1,665.8
1,628.8
Government purchases
2,075.5
1,909.4
Gross exports
1,046.2
1,031.8
Gross imports
1,544.3
1,550.3
-498.1
-518.5
Net exports
Citations Table 1.1.5 & Table 1.1.6 at
http://www.bea.gov/bea/dn/nipaweb/SelectTable.as
p?Selected=N
in chained (2000)
dollars
Return
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Worksheet 03 - Expenditures
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Nominal GDP = C + I + G + NX
C = $7760.9 bil.
 I = $1,665.8 bil.
 G = $2,075.5 bil.
 NX = EX – IM = ($1,046.2 bil. - $1,544. bil.)
= - $498.1 bil.
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$11,004.1 [Billions of dollars]
Return
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Worksheet 03 - Insights
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What insights have you gained from
researching these data?
Return
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Worksheet 03 –
Standard of Living
Return
Q16 Grandparents faced different
prices adjust for price changes
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Use “real”, “constant dollar” or
“chained dollar” data
Q17 Population increases
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Use per capita data
Q18 Other issues
Q19 How might you adjust?
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Worksheet 03 –
Standard of Living
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Return
Household production
Underground economy
Environment
Length of work day
Health and Life expectancy
Justice and Freedom?
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Decision Tree
Focus
on student questions
Review Worksheet 03
Discuss Selected terms
Other Key terms and concepts
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Components of
GDP
Factor cost to
Market price
Net to Gross
Real versus
Nominal GDP
Expenditure vs.
Income approach
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Omissions from
GDP
 GDP and the
Standard of Living
 Cross-country
comparisons
 Finding data on
GDP
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Assignments
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Components of GDP (5)
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Individually
5/25/2016
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List the expenditure components of GDP
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List the income components of GDP
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Other Key Concepts
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Components of GDP (10)
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Groups
Compare lists, discuss differences, and
make a list for the Group.
 Verify each Group member knows the
definition of components
 Create list of examples for each category
 Place on the Circular Flow Diagram
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Other Key Concepts
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Components of GDP (5)
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Class
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Review examples of expenditure
components
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GDP = C + I + G + NX
Review placement of components on
Circular Flow
 Might this inform your essay?
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Other Key Concepts
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Components of GDP
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Class
Review examples of income components
 NDP = Factor payments
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Labor => Employee Compensation
 Capital => Net Interest
 Land => Rental Income
 Entrepreneurship =>Corporate Profits
 Proprietor’s Income (combination)
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Other Key Concepts
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Components of GDP (5)
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Class
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Review placement of components on
Circular Flow
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Might this inform your essay?
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Other Key Concepts
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Factor cost to Market price (5)
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Individually
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Write a short explanation of the
difference between output measured by
factor prices and output measured by
market price.
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Other Key Concepts
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Factor cost to Market price (5)
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Groups
Compare explanations and discuss
differences.
 Create an explanation each Group
member supports and understands.
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Other Key Concepts
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Factor cost to Market price (5)
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Class
Compare answers and discuss.
 Add indirect business taxes (they make
market price higher than factor cost)
 Subtract subsidies (they make market
price lower than factor cost)
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Circular flow
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Other Key Concepts
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Net to Gross
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Individually
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Write a brief explanation of the difference
between NDP and GDP.
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Write a brief explanation of the difference
between gross investment and net
investment.
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Other Key Concepts
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Net to Gross
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Groups
Compare explanations and discuss
differences.
 Create an explanation each Group
member supports and understands.
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Class
Compare answers and discuss.
 Depreciation
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Other Key Concepts
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Real versus Nominal GDP
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Individually
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Write a short explanation of the
difference Nominal GDP and Real GDP.
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Other Key Concepts
40
Real versus Nominal GDP
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Groups
Compare explanations and discuss
differences.
 Create an explanation each Group
member supports and understands.
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Class
Compare answers and discuss.
 Real adjusts for changes in price levels
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Other Key Concepts
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Expenditure versus Income
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Individually
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5/25/2016
Write a short explanation of the
difference between calculating GDP
using expenditure streams and GDP
using income streams
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Other Key Concepts
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Expenditure versus Income
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Groups
Compare explanations and discuss
differences.
 Create an explanation each Group
member supports and understands.
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Class
Compare answers and discuss.
 Real adjusts for changes in price levels
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Circular flow
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Other Key Concepts
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Omissions from GDP
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Individually
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List 3 examples of production that is
omitted from the calculations of GDP.
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Briefly explain why they are omitted.
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Other Key Concepts
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Omissions from GDP
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Groups
Compare answers and discuss.
 Organize examples into types of
omissions.
 Briefly explain why each type is omitted.
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Other Key Concepts
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Omissions from GDP
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Class
Compare answers and discuss.
 Household production
 Underground (illegal) production
 Value of leisure time
 Environmental quality
 Freedom & Justice
 Quality and length of life
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Other Key Concepts
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GDP and the Standard of Living
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Individually
Write a brief definition of your idea of the
“Standard of Living”
 How you would adjust GDP to better
measure your definition?
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Might this inform your essay?
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Other Key Concepts
47
GDP and the Standard of Living
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Groups
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Compare definitions
Are there definitions in common?
 Are there differences?
 Can the group agree on a common
definition?
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Can the group agree on a common
adjustment to GDP?
 Evaluate if the adjustment to GDP is
adequate.
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Other Key Concepts
48
GDP and the Standard of Living
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Class
Rotate among groups for definitions
 Compare and discuss adjustments.
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Are there continuing issues with these
measures of the standard of living?
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Other Key Concepts
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Cross-country comparisons
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Individually
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5/25/2016
Make a short list of the issues involved
when comparing GDP in different
countries.
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Other Key Concepts
50
Cross-country comparisons
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Groups
Compare list and discuss differences.
 Can the group explain why these issues
make cross-country comparisons
difficult?
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Other Key Concepts
51
Cross-country comparisons
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Class
Compare list and discuss explanations.
 Are there other issues if we desire to
compare the standard of living in
different countries?
 What of comparisons of the same
country at different times?
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Other Key Concepts
52
Finding data on GDP
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Individually
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5/25/2016
Write a short list of sources you would
consult to find data on the national
income and product accounts (GDP and
its components).
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Other Key Concepts
53
Finding data on GDP
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Groups
Compare lists and discuss differences.
 Create a Group list organized from the
most useful to the least useful source.
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Other Key Concepts
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Finding data on GDP
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Class
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Compare answers and discuss.
List
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Are there other sources?
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Other Key Concepts
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Finding data on GDP
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Search Web for data?
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Start with WebCT
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Decision Tree
Focus
on student questions
Review Worksheet 03
Discuss Selected terms