Transcript Intro Chapter 4

Intro Chapter 4
Economic Measurements
Measuring Economic Growth
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Economic Growth refers to a steady increase in production of
goods and services.
The total of all the goods and services that Americans
produce is the output or production of our nation.
Gross Domestic Product-is the total dollar value of all final
goods and services produced in our country during one year.
It is the measure of how the economy is performing.
Three major categories of expenditures:
 What consumers spend for food, clothing, and housing;
 What businesses spend for buildings, equipment, and supplies;
 What government agencies spend to pay employees and to buy
supplies.
Gross Domestic Product (GDP)-cont,
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If the GDP increases from year to year, this is a good sign that
our economy is growing and is healthy.
In order to make a comparison that is fair between years, we
need to take the current prices and adjust them each year so
that they are equal in value over a period of years.
Base Year-means the year chosen to compare an item, such
as price, to any other year.
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CONSTANT DOLLAR GDP- is the value of gross domestic
product after taking out the effect of price changes. This is
referred to as the real GDP.
Labor Productivity
• Productivity is measure in terms of the number of items produced
per worker.
•Productivity Increase-an increase in goods and services from the
same amounts of labor.
•Our ability to produce more and more goods and services as our
country developed has made it possible to reduce the number of hours
in a workweek.
The Business Cycle
A Business Cycle is the movement of the economy from one
condition to another and back again.
•Business cycles are the recurring ups and downs of the
GDP.
•The cycles are:
•Prosperity-is a phase of the business cycle when most people
who want to work are working and businesses produce goods and
services in record numbers.
•Recession-is a period where demand begins to decrease,
businesses lower production of goods and services, unemployment
begins to rise, and GDP growth slows for two or more quarters of
the calendar year.
•The Ripple Effect is when a decline in one industry affects several
other industries.
The Business Cycle-cont.
•Depression-is a phase marked by a prolonged period of high
unemployment, weak sales of goods and services, and business
failures. GDP falss rapidly during a depression
•During the great depression (1930-1940) 25% of of the American
labor force was unemployed.
•Recovery-is the phase in which unemployment begins to decrease,
demand for goods and services increases, and GDP begins to rise
again.
Inflation and Deflation
•Inflation-is a sustained increase in the general level of prices.
•One type of inflation occurs when the demand for goods and
services is greater than the supply.
•When a large supply of money, earned or borrowed, is spent for
goods that are in short supply, prices increase.
•Even though wages may increase prices of goods usually exceed
these modest increases.
•Deflation-means a decrease in the general level of prices.
• It usually occurs in periods of recession and depression.
•Prices of products are lower but people have less money to buy
them. Between 1929-1930 prices declined about 25%.
Our Economic Future
•Serious economic problems exist within our economy that need to be
solved.
•Many people do not have access to adequate health.
•Some people do not have proper housing (Appalachian Service
Project).
•Crime and traffic problems.
•Too many people unemployed or do not have appropriate
employment.
Having a good job is an important part of life for most people.
Economic growth must increase continuously to maintain or
increase out existing standard of living.