ch12notes - Cobb Learning

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Transcript ch12notes - Cobb Learning

How do we measure the
economy’s growth?
Understanding Macroeconomic
indicators of prosperity
GDP (Gross Domestic Product)
• Def.- the dollar value of all final goods and
services made within a country in a year.
• Final goods-those goods produced for
• Intermediate goods- used to make other g/s, are
not counted as part of GDP
• Durable goods- goods that typically last 5 years.
Ex: refrigerators, cars, T.V.s, jewelry, etc.
• Nondurables- goods that are consumed relatively
quickly. Ex: food, clothes, toothbrushes, light
Production that is included in GDP
• A final good that is made in the U.S., although
parts of the production process can occur in
another country.
• Goods must be new, not used goods being resold.
• Services counted in GDP must represent
consumption, like a haircut, and not a stage of
production, like working in a restaurant.
• Exports are also part of GDP
• Capital Goods and services that are consumed by
business or government that do not become part
of a final good are included.
Read “GDP Rebound Reason for
Consumer, Fed Optimism”
• What contributed most to the growth the
economy experienced last quarter?
• What “offset” the 9.5% growth of export
markets to actually cause net exports to be
• What does the article suggest may be the
reason for the growth of business inventories
that occurred in the 1st quarter of this year?
Nominal vs. Real GDP
• Nominal GDP- GDP that is not adjusted for
• Real GDP- When GDP is adjusted for inflation.
• Real GDP is a better indication that growth has
occurred in the economy.
Limitations of GDP
• GDP does not include nonmarket activities, which are
productive, but not done for profit. Ex: raising children,
painting your own house, cooking dinner.
• GDP does not reflect underground markets like the
black market or the barter economy.
• GDP does not reflect negative externalities that effect
our quality of life.
• GDP does not reflect the increase to your quality of life
created by a g/s, only that g/s’s $ value.
• GDP does not distinguish between durable and
nondurable goods.
• GNP-(Gross National Product)- the annual
income earned by U.S. owned firms and U.S.
• GNP includes all of GDP plus g/s produced
overseas by U.S. businesses and citizens.
Aggregate Supply and Demand
• Aggregate supply- refers to all g/s produced at
all possible average prices.
• Aggregate demand- refers to all g/s consumed
at all possible average prices.
• Movement of the equilibrium of aggregate
supply and demand is an indication of
inflation or deflation.
Real GDP per capita
• GDP will likely go up as a population grows. To
better indicate a change to the standard of
living, Real GDP is divided by population.
• While this is a more refined indicator of the
standard of living, it doesn’t reflect the gap
between rich and poor.
• What countries have the highest and second
highest GDP in 2010?
• What country’s GDP has the highest
percentage in manufacturing markets?
• What is the trend of manufacturing’s % in the
nations/ regions charted on the graph?
• What country had the highest GDP in 2010?
The Business Cycle
• Def.- the tendency of the economy to go from
a time of expansion to a time of contraction.
The Business Cycle
• Expansion- time when real GDP is rising
• Contraction- time when real GDP is falling
• Recession- when real GDP falls for at least 2
quarters (6 months)
• Depression- a long recession
• Stagflation- a decline in real GDP combined
with a rise in prices.
Causes of the Business Cycle
• Business Investment- increased investment in
businesses increases GDP, and vice versa
• Interest Rates- higher interest rates makes it
harder to buy g/s, so GDP goes down, and vice
• Consumer Expectations- Fear of an economic
downturn causes people to buy less stuff, and
thus causes contraction in the economy
• External Shocks- Any big event is bound to effect
the economy. They can be positive or negative.
Indicators of a change in the Business
• Leading indicators- that which suggests their may
be a turn coming up in the business cycle. Ex:
sharp turn in the stock market, changing interest
• Coincidental indicators- occur at the same time as
a change in the cycle. Ex: business profits, and
higher personal income.
• Lagging indicators- that which points out that a
change has already happened in the business
cycle. Ex: rising or falling employment.
Ch 13: Unemployment
To be considered “unemployed” labor force, you
must be:
1. 16 years old or older.
2. Looking for a job, but can’t find one.
Types of Unemployment
• Frictional unemployment- happens when a
worker is between jobs, generally by choice.
Ex. You leave your job to find one you will be
happier with.
• Seasonal unemployment- happens when a
change in season causes an industry to slow
down or shut down. Ex. Agriculture, tourist
seasons, construction,
Types of Unemployment
• Cyclical Unemployment- caused by a
downturn in the business cycle.
• Structural Unemployment- occurs when the
skills of a worker become outdated, and they
can no longer adequately do their job, or
there is no need for that job anymore.
CPI (Consumer Price Index)