Transcript Chapter 12 2

GDP
Business Cycles
Economic Growth
 Average
wage dropped from 55 cents per
hour to 5 cents per hour
 Unemployment shot to 35%
 Toledo, Ohio – unemployment was 80%
 Wasn’t just a U.S. depression, became
worldwide because of decrease in trade
 Poor economic conditions in Germany led to
the rise of Adolf Hitler
 Stock
market was the main economic indicator
 Motivated economists to devise ways of
measuring and predicting economic
performance
 Originally thought economy would regulate
itself – (Adam Smith)
 Great Depression changed people’s thoughts
 Social
Security Act of 1935
 Unemployment insurance
 FDIC
 Minimum Wage
 Securities and Exchange
Commission
 To
check-up
on the economies vital
signs to see if we are
meeting our goals
 Full
employment
 Stable prices
 Economic growth
 Purpose
1.
2.
3.
4.
of Economic Indicators:
Gives a complete evaluation of where
the economy is headed
Measures the financial well being of the
public
Each indicator is not accurate by itself
Look at all, get a good idea of what’s
cookin’
 Average
weekly hrs in manufacturing
 Average weekly initial claims for state
unemployment insurance
 New orders for consumer goods/materials
 Prices of 500 common stocks
 Contracts /orders for plant and equipment
 New building permits
 Vendor performances (companies reporting
deliveries)
 Net change in inventories on hand/or order
 Index of consumer expectations
 Interest rate change US Treasury (less federal
funds)
 Money supply
 Gross
Domestic Product (GDP)– real output
• The dollar value of all final goods and services
produced within a country’s borders in a given year
• Dollar value – total of the selling prices of all goods and
services produced in a country in one calendar year
• Final goods and services – products in forms sold to
customers
 Not those used in the production of the final good
• Better measure of American economic activity as it
directly affects Americans in terms of labor, goods, and
services consumption
 House
constructed in 1982: counted in 1982,
not when it is resold years later
 Lumber, nails, sheet rock would not be
counted in 1982 – only the final price of the
house
 Real estate fees would be counted
 Cars assembled in Ohio by Toyota - counted
 Cars assembled in Brazil by GM - not
 GDP
= C + BI + G + (EX –IM)
• C = Personal Consumption
• BI = Business Investment
• G = Government expenditures
• EX = export spending
• IM = import spending
(Note import spending is subtracted when calculating
GDP.)
 Sector
of the economy
• Household
 Definition
• Expenditures or spending made by the household
sector on goods for personal use
 Examples
• TV sets, telephones, clothes, lamps, cars
 Sector
of the economy
• Business
 Definition
• Expenditures made by the business sector on
goods used in producing other goods; also includes
business goods
 Examples
• Tools, machines, factories
 Sector
of the
economy
• Government
purchases
 Definition
• Expenditures made
by federal, state,
and local
governments
 Examples
• Paper, pens, tanks,
planes
 Sector
of the economy
• Foreign
 Definition
• Expenditures made by foreigners for American-
made goods
 Examples
• Cars, wheat, computers
 Sector
of the economy
• Foreign
 Definition
• Expenditures made by Americans for foreign-made
goods
 Examples
• Cars, radios, computers
 Increase
our productivity
 Get the most out of our scarce resources
 Technology
 Can’t
measure things you do by
yourself
• Lawn mowing, babysitting, cooking
dinner
 Black
Market Activities
• Illegal drugs, weapons, stolen cars
 Trades
with friends
• Pokemon cards
 Externalities
• Clean environment
 Does
not measure quality of life
• Divorce, health, crime, personal
safety
 A.K.A. – standard of living
• The dollar value of all finished goods and services
available per person
 GDP/population
 This
is NOT how much a person makes in a
year
 Have to look beyond the numbers – just
because the economy is doing well does not
mean the society is
Top 1%
Next 19%
Bottom 80%
1983
42.9%
48.4%
8.7%
1989
46.9%
46.5%
6.6%
1992
45.6%
46.7%
7.7%
1995
47.2%
45.9%
7.0%
1998
47.3%
43.6%
9.1%
2001
39.7%
51.5%
8.8%
2010
42.8%
50.5%
6.7%
 Changes
 Changes
in the money supply
in business investments, residential
construction, and government spending
 Politics
 Innovation
 Dramatic changes to supply




Peak
• Height of an economic expansion when real GDP stops
rising
• Marked by a booming economy, full employment,
inflation
Contraction
• Period of economic decline marked by falling real
GDP
Trough
• The lowest point in an economic contraction, when real
GDP stops falling
Expansion
• Period of economic growth, measured by a rise in real
GDP
 Recession
• Two consecutive economic quarters where GDP
decreases
 Depression
• Very severe recession where there are large
numbers of people out of work, acute shortages,
and excess capacity in manufacturing plants
• Cartoon - Recession