Transcript Gross Domestic Product

Unit 4: Day 1
GDP: Dollar value of all final goods and services
produced within a country’s borders in a given
year.
GDP shows us how well (or poorly) the economy
is doing.
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Dollar Value = total selling prices of all goods
and services
Final goods and services = sold to consumers
Produced within a country’s borders =
example: Japanese cars made in USA not
American cars made in Mexico
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Consumer goods and services
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Non-durable: food
Durable: refrigerators
Business goods and services
Government goods and services
Net exports and imports of goods and services
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Base GDP on how much people were paid to
produce good.
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Nominal GDP: based on current prices to value
current output.
Real GDP: based on constant prices (used to
compare two years)
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Nonmarket activities
Underground economy
Negative externalities
Quality of Life
Unit 4: Day 1
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Patterns of economic expansion and
contraction.
Expansion = economic growth
 Peak = the height of economic growth
 Contraction = economic decline
 Trough = economic low point
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Recession – GDP falls for two consecutive
quarters (6 months)
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Depression – Long and sever recession
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Last 6-18 months
Unemployment 6-10%
High Unemployment, Low factory output
Stagflation – decline in real GDP combined
with a rise in price levels
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Business investments: business invest a lot of
money but eventual cut back.
This drop affects other areas of the economy:
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Interest Rates and Credit:
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Low interest rates: people and businesses can buy
stuff.
High interest rates: you don’t buy as much.
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Consumer Expectations: fears can cause people
not to spend money.
External Shocks: disruptions of oil supplies,
wars and droughts
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Economist use unemployment as a measure of
economic strength.
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Frictional unemployment: people take time to
find a job.
People who quit one job to find work somewhere
else.
 Students right out of college looking for a job.
 People who leave the workforce for other reasons
and then go back to looking for work.
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Seasonal Unemployment: steady work
followed by a predictable period of
unemployment.
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Normally in industries where there is seasonal work
(construction, farming, etc)
Lives of those seasonally employed can be very
difficult.
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Structural Unemployment when the economy
itself changes.
Shifting from a manufacturing economy to a service
based economy.
 When technology becomes out-dated.
 New Resources
 Changes in consumer demand
 Globalization
 Lack of education
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Cyclical Unemployment: This is due to
recessions.
When there is less demands for goods, employers lay
off workers.
 Lay off workers – they have less money to buy stuff
– demand for goods goes down – lay off more
workers – continues…
 Many economists say that companies are in better
shape by not laying off employees in this way.
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Full employment: when there is no cyclical
unemployment (there still can be frictional,
seasonal, and structural)
But there are major issues with this…
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These are people who are working at a job for
which they are over-qualified, or working parttime when they want full time work.
This is a really big issue right now as people
(especially those who are older) are being laid
off in favor of younger (read cheaper)
employees. They cannot find jobs in their fields
and end up taking jobs for which they are over
qualified.
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People give up looking for jobs…but they then
are not counted in the unemployment rate.
Right now in this country, actual people
without work who would like work is
probably more like 20%!
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Overtime, prices raise and fall…generally they
go up – this is inflation.
That’s why a movie ticket cost $.25 in the 1950’s
and close to $15 today.
Another way to look at this is that purchasing
power has shrunk – your dollar does not go as
far as it once did.
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A measurement to show how much prices have
overall risen.
The Consumer Price Index is computed each
month to show in general what an urban
consumer would pay for goods.
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Generally inflation is in a upward trend.
Hyperinflation: inflation that is our of control
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Germany after WWI
Many Sub-Saharan African countries.
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Quantity Theory: too much money floating
around.
Demand-Pull Theory: inflation happens when
demand exceeds supply.
Cost-Push Theory: inflation occurs when
producers raise prices to meet increased costs.
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Raise wages – increase in product cost – increase in
consumer prices and raised costs of living – demand
for higher wages.
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Reduced Purchasing Power
Erodes Income:
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Especially true for fixed income
Also, for jobs in which there is not cost-of-living
adjustments
Interest Rates: for savers, if interest meets or is
less than inflation , their savings will loose
value.
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Poor Families = when total income is less than
the amount required to meet minimum needs.
Poverty Threshhold: income level is less than
what is necessary to support a family.
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Percentage of people who are in households
below the official poverty threshold.
Different Indicators:
Ethnic Origins:
 Type of Family:
 Age:
 Residence:
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Many poor are not unemployed, but rather
considered “working poor” when low wages
and few work hours contribute to poverty.
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Lack of Education: more education, more
money.
Location: intercity and rural areas.
Ethnic and Gender discrimination: white more
than minorities; men more than women.
Economic Shifts: lack of education and skills
detrimental today.
Shifts in Family Structure: single parent
families more likely to live in poverty.
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Developed Nations vs. Less Developed Nations
But Mrs. Chaddick doesn’t like this label…
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First World – Western countries
Third World – Africa, parts of Asia, parts of
Latin America
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Economist who created a model of economic
development stages.
Each civilization went/is going through each of
these stages.
Takeoff
Transition
Traditional
Economy
Drive to
Maturity
Mass
Consumption
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Traditional Economy: 1800’s Jefferson’s
agrarian country.
Transition: Cotton Mills in New England (18301860)
Take Off: Gilded Age Industrial Revolution
(1860-1900)
Drive to Maturity: Progressive Era (1900-1920)
Mass Consumption: Roaring Twenties to
Present (1920-today)
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Traditional Economy: Colonial Rule
Transition: Sweat Shops
Take Off: Garment Industries
Drive to Maturity: IT
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Traditional Economy:
Transition: Sweat Shops
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Ways of determining each stage:
Per Capita GDP
 Energy Consumption
 Labor Force
 Consumer Goods
 Literacy
 Life Expectancy
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Jeffery D. Sachs
He states in his book “The End of Poverty:
Economic Possibilities of Our Time” that
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The levels of development are a good thing because
when in the process, countries are getting better.
Countries who are in the “Traditional” level are not
in a place to even begin an upward movement.
The world is divided between the “haves” and the
“have-nothing-at-alls”
This doesn’t have to be…
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Much of the reason that these countries are
“not on the ladder” is because of
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wars
curable diseases (but they don’t have enough money
to buy vaccines or medicines that first world
countries take for granted)
AIDS
Lack of clean water
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All of those issues can be helped, can be
reduced, can be eliminated.
But to do that, the whole world needs to lend a
helping hand to these areas.
Sachs argues that there is no need for Poverty.
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The world economies are not a zero sum game.
…We could be the first generation to outlaw the
kind of extreme, stupid poverty that sees a
child die of hunger in a world of plenty, or of a
disease preventable by a twenty-cent
inoculation. We are the first generation that can
afford it. The first generation that can unknot
the whole tangle of bad trade, bad debt, and
bad luck. The first generation that can end a
corrupt relationship between the powerful and
the weaker parts of the world which has been
so wrong for so long…
We can be the generation that no longer accepts
that an accident of latitude determines whether
a child lives or dies –but will we be that
generation? Will we in the West realize our
potential or will we sleep in the comfort of our
affluence with apathy and indifference
murmuring softly in our ears? Fifteen thousand
people dying needlessly every day from AIDS,
TB, and malaria. Mothers, fathers, teachers,
farmers, nurses, mechanics, and children. This
is Africa’s crisis. That it’s not on the nightly
news, that we do not treat this as an emergency
–that’s our crisis…
Who we are, who we’ve been, what we want to be
remembered for. We can’t say our generation
didn’t know how to do it. We can’t say our
generation couldn’t afford to do it. And we
can’t say our generation didn’t have reason to
do it. It’s up to us. We can choose to shift the
responsibility, or, as the professor proposes
here, we can choose to shift the paradigm.
- Bono, 2004