¡ Gross Domestic Product
§ market value of all final goods and services produced within a country in a year
§ Final goods are purchased by the last user and will not be resold or used to produce anything else
Not counted in GDP
¡ Intermediate goods
ü Resources of any kind
¡ Used goods
ü Ex: Used cars, purchase of an older home, thrift store clothing, Craigslist, Ebay
¡ Illegal goods/services
ü Ex: Drugs, theft etc.
¡ Purely financial transactions
ü Ex: Investment in stocks or savings
¡ Transfer Payments
ü Ex: Social Security, Food Stamps
¡ Barter
ü Ex: Babysitting for yardwork
Components of GDP
-C: consumer spending
§ Daily spending on goods and services
-I: business investment spending
§ Machinery, factories, equipment etc.
-G: government spending
§ Spending by all levels of government - military, school, highways, supplies etc.
-NX: net export spending
§ Purchases of U.S. goods and services by foreign buyers (exports) minus purchases of foreign goods and services by U.S. consumers (imports)
Example:
§ In 2000, estimates in trillions of dollars
§ GPP = C + I + G + NX
$10.04 = $6.81 + $1.87 + $1.75 + ($1.13-$1.52)
Unemployment Rate
§ Percentage of labor force who is not working
§ Labor Force: everyone 16 – 65 who is working or actively looking for work
§ 3 types of unemployment
Frictional unemployment
¡ People are out of work temporarily
§ Seasonal work
§ Changing jobs
§ Looking for 1st job
¡ This is acceptable unemployment
Structural unemployment
¡ Unemployment because your job skills are no longer needed
§ Ex. Technology replaces workers so people are laid off
¡ People can go back to school and learn new skills
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Cyclical unemployment
¡ People are unemployed due to fluctuations in the business cycle
§ As the economy declines, people lose their jobs
¡ Worst kind of unemployment, can not easily fix. Economy must recover first.
Consumer Price Index
§ Index of all goods and services produced in a country
§ Measured by a market “basket” of all goods and services that are commonly bought year after year by the typical urban household
Effects of Changing CPI
¡ Inflation
§ Rising price levels
§ purchasing power of the dollar falls
§ Dollar buys less
§ Deflation
§ Falling price levels
§ purchasing power of the dollar rises
§ Dollar buys more
Hyperinflation: rapid inflation
ex. Germany after WWII
Stagflation: rising prices with falling GDP and rising unemployment
Relationship between GDP, Unemployment and CPI
Business Cycle