Transcript The Consumer Price Index (CPI)

ECONOMIC PERFORMANCE
1.
Gross Domestic Product (GDP)
is the dollar amount of all final
goods and services produced
within a country’s national
borders in a year. It is the
single most important measure
of the economy’s overall
economic performance. (a
measure of economic output)
2. National income accounting is a
system of statistics and accounts
devised by economists to keep
track of production, consumption,
saving and investment to help track
overall economic performance. If
it is produced in this country it is
counted in our GDP even if it is a
foreign owned company, whereas,
the production of American
companies in foreign countries do
not count in our GDP.
3. GDP is computed by multiplying
all of the final goods and
services produced in a 12 month
period by their prices and then
adding them up to get the total
dollar value. (figure 13.1 page
342)
4. GDP estimates are made
quarterly by NIPA- National
Income and Product Accounts –
and kept by the U.S.
Department of Commerce
5. Items excluded from GDP:
 Intermediate products – used to make
other products that are already
counted in GDP – ie. Flour in a cake
mix or tires on a new car
 Second-hand sales – the sale of used
goods
 Non-market transactions – do not take
place in the market – ie. Mowing your
own lawn or fixing your own car
 Underground economy – illegal
activities
6. GDP tells nothing about the
composition of output – for example,
GDP could rise 10 billion but if it is
because of the military purchasing
stockpiles of nerve gas then it does
nothing to improve our quality of life.
Also, new home constructions might
increase GDP but can also threaten
wildlife or the environment and could
have a negative effect on the quality of
life.
7. A larger GDP indicates that
more people are better off and
the economy is doing well which
means jobs and a better quality
of life for all.
8. GDP is important because
it is the single most
important measure of our
economy’s health
9. GNP is Gross National Product
and is another way to measure
economic health. GNP measures
income rather than output
10.To compute GNP, you must add to
GDP all payments that Americans
receive from outside the U.S.,
then subtract all payments made
to foreign-owned resources inside
the U.S.
Figure 13.2 shows that in the U.S.
GNP is smaller than GDP because
we paid out more income to
production in other countries than
we received.
11. National Income (NI) is a
third measure of income and
is the income left after
indirect business taxes are
paid. These include excise
taxes, property taxes,
licensing fees, customs
duties, and general sales
taxes.
Net National Product
(NNP) is calculated by
subtracting depreciation
from GNP
12.
13. Personal Income or PI is
the fourth measure of
income and is the total
amount of income going to
consumers before individual
income taxes are subtracted.
14. Disposable Personal
Income – DPI – is the fifth
and smallest measure of
income and is the total
income the consumer sector
has at its disposal after
personal income taxes. It is
the actual amount of money
that people have left over to
spend.
15. Study Chart on page 345
16. The Output Expenditure
Model is used to show
aggregate demand by the
consumer, business,
government, and foreign
sectors. GDP = C+I+G+(x-m)
and is used to explain and
analyze our economy’s
performance
17. Inflation is a rise in the
general level of prices. It
can distort economic
statistics.
19. Economists correct for inflation by
constructing a price index which measures
changes in prices over time. A base year is
selected to serve as a comparison year.
The index expresses the price of goods and
services in a given year as a percentage of
the price of those goods during the base
year. Economists select a representative
sample of goods and services called a
market basket and totals the cost. This
total represents the base-year market
basket price and is assigned a value of 100
percent (Figure 13.5)
20. The Consumer Price Index (CPI) reports on
price changes for about 80,000 items in
364 categories in 85 geographically
distributed areas and are compared to their
82-84 base year prices. The Bureau of
Labor Statistics reports these monthly
changes.
The Producer Price Index (PPI) measures
monthly price changes paid by domestic
producers for their inputs. It is based on a
sample of about 100,000 goods and uses
1982 as the base year.
Implicit GDP price deflator is an index of
average levels of prices for all goods
and services in the economy. It is
computed quarterly and has a base year
of 1996
21. When GDP is not adjusted to remove
the effects of inflation, it is called
current GDP or just GDP.
When the distortions of inflation have
been removed, it is called real GDP or
GDP in constant dollars
Real GDP = GDP in current dollars divided
by implicit GDP price deflator times
100 (example page 353)
This conversion of current
dollars to real dollars helps us
understand whether an increase
in GDP is real or simply due to
inflation
23.Population influences economic growth
in the following ways:
 If population increases then labor
increases and so does production
 If population grows faster than
output, then per capita output falls
and could cause too many mouths to
feed
 If population grows too slowly, there
won’t be enough labor and economic
growth will slow
 Population growth affects the quality
of life
24.The census is a population count of
the U.S. which takes place every 10
years
25.Though the population of the U.S. has
grown, the rate of growth has actually
slowed over time
26.The regions of the South and West
have grown in population while the
older more industrial North and East
have grown more slowly
27.Center of population is the point
where the country would balance if it
could be laid flat and all the people
weighed the same. In 1790 is was 23
miles east of Baltimore Maryland.
Today it is now in Missouri.
Chart page 358 and 359
28.Real GDP per capita means dividing
real GDP by the population. It is a
better measure of economic growth.
U.S. – real GDP – 13 trillion dollars
per capita GDP - $44,000
30. If population grows
faster than the economy,
there will be many negative
effects that are obvious in
many poor countries that
have too many people and not
enough food.
31. Benefits of Economic Growth:
 Higher standard of living (quality of life)
 Bigger tax base for government to spend
money on needs of the people
 Fewer domestic problems such as poverty,
inadequate health care, and economic
insecurity
 Increases our demand for foreign made
products which helps generate the economy
in these countries
 Provides a global role model for developing
nations
32.Plentiful natural resources makes a
nation more self-sufficient and
produces more economic growth
33.Economic growth requires a high
capital to labor ratio. The key to this
is saving. That means cutting back on
consumption to make factors of
production more available
34.Economic growth requires a skilled
labor force
35.Entrepreneurs need a stable business
climate to take risks and succeed
36.Labor productivity is the amount of
output produced per unit of labor
input. Productivity goes up when this
ratio goes up.
37.The personal computer has increased
productivity
38.The more efficient the productivity,
the more it benefits the people.
Prices stay low and quality high. If we
buy more U.S. made, more jobs are
produced here!
ECONOMIC PERFORMANCE