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Measuring the economy student


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Measuring the economy student

  1. 1.
  2. 2. Macro v. Micro<br />
  3. 3.
  4. 4. Economic Indicator #1: Gross Domestic Product<br />Read Econ Alive pages 252-254 and complete notes in section III (A – D)<br />
  5. 5. GDP – The Measure of National Output<br />Gross Domestic Product<br />Market value of all final goods and services produced within a country during a given time period<br />Market value – price x quantity produced<br />Final goods – any new good that is ready for use by a consumer<br />GDP excludes intermediate goods (one’s that are used to make others)<br />GDP excludes secondhand sales (sale of used goods)<br />Produced within a country – foreign owned firms that produce within the borders COUNT towards GDP<br />Given time period – look at quarterly GDP & yearly<br />Most important is the growth rate of GDP<br />Issues with GDP – leaves out unpaid household & volunteer work, ignores informal/underground economy, says nothing about income distribution, doesn’t show what was exactly produced<br />
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  7. 7. Significance of GDP Analysis<br />We have seen low GDP growth recently…it means we haven’t quite recovered yet!<br />
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  10. 10. Adjusting GDP<br />Let’s say this:<br />2006 GDP was $13.2 trillion<br />2007 GDP is $13.8 trillion<br />Is this good for the U.S. economy?<br />
  11. 11. Real vs. Nominal GDP<br />
  12. 12. Another income measure<br />Per capita GDP<br />GDP per person where the total GDP is divided by the population (measures standard of living from country to country)<br />
  13. 13. Economic Indicator #2: Inflation<br />Read Econ Alive pages 261-266 and complete notes in section V (A-B, D-G)<br />
  14. 14. Inflation Rate<br />Definition: the percentage increase in the average price level of goods & services from one month/year to the next<br />Consumer Price Index (CPI)<br />price index for the “market basket” of consumer goods & services<br />Called the “cost-of-living” index<br />Primary measure of inflation in the U.S.<br />Market basket based on thousands of surveys of households about spending habits and then BLS tracks price changes of these items each month<br />
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  16. 16. Severity of Inflation<br />
  17. 17. Hyperinflation: Germany, 1923<br />A German woman feeding a stove with German Marks, which burned longer than the amount of firewood people could buy with them.<br />In other words, it was cheaper to burn a stove with German Marks ($) than buying wood!<br />Source:<br />
  18. 18. Causes of Inflation…<br />Demand-Pull<br /><ul><li> People in the economy try to buy more than what is being produced
  19. 19. High demand causes shortages … and prices go up
  20. 20. Large increases in the money supply causes this!</li></ul>Wage-Price Spiral<br /><ul><li> Higher prices force workers to request higher wages
  21. 21. Higher wages force producers to  prices (to cover  costs)</li></ul>...the spiral begins<br />Cost-Push<br /><ul><li>Rising production costs cause an increase in prices</li></li></ul><li>What are the COSTS of INFLATION?<br />
  22. 22. Economic Indicator #3: Unemployment<br />Read Econ Alive pages 258-261 and complete notes in section VI (B-D)<br />
  23. 23. Unemployment<br />The unemployment rate shows the percentage of unemployed people divided by the total number of people in the civilian labor force<br /> To be unemployed one must…<br />
  24. 24.<br />
  25. 25. Problems with the Rate<br />
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  27. 27. Frictional, Structural, and Seasonal are all acceptable unemployment types but what we want to minimize is cyclical unemployment<br />Full Employment occurs when jobs exist for everyone who wants to work and the economy is healthy & growing<br />4-6% unemployment is healthy<br />This rate may be changing!!!<br />
  28. 28. Business Cycles – Measures the changes in economic activity (real GDP) of a country<br />Read Econ Alive pages 266-269 and complete notes in section VII (A-C, E)<br />
  29. 29. The Great DepressionWorst and most prolonged economic downturn<br />Marked by the stock market crash on “BLACK TUESDAY” - October 29, 1929 <br />Between 1929 and 1933, GDP declined nearly 50%.<br />Unemployment peaked at 24.9% (1933).<br />Decade long depression ended by 1940.<br />World War II<br />U.S. economy returned to its growth trend<br />Spending on wartime goods helped stimulate the economy.<br />Since than, the overall trend has been GROWTH.<br />Business Cycles in the U.S. <br />
  30. 30. Phases of the Business Cycle<br />Phase: Expansion- period of increasing real GDP (we’re producing more!)<br />Recovery– period when the economy begins to produce more again <br />Phase: Contraction- period of decline in real GDP (we’re producing less!)<br />Recession– when real GDP declines for two consecutive quarters or six months<br />Depression– prolonged economic downturn characterized by extreme conditions – plummeting GDP, extremely high unemployment, bank/business failures, etc.<br />
  31. 31. Phases of the Business Cycle<br />Phase: Peak – point where real GDP stops going up<br />Phase: Trough– point where real GDP stops going down <br />