Transcript Economics: Principles and Applications, 2e by Robert E. Hall & Marc

Economics: Principles and
Applications, 2e
by Robert E. Hall &
Marc Lieberman
© 2001 South-Western, a division of Thomson Learning
Production, Income,
and Employment
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Production and Gross
Domestic Product
•GDP: A Definition
•The Expenditure Approach to GDP
•Other Approaches to GDP
•Measuring GDP: A Summary
•Real Versus Nominal GDP
•How GDP Is Used
•Problems with GDP
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Production and Gross
Domestic Product
Gross Domestic Product (GDP)
The total value of all final goods and services
produced for the marketplace during a given
year, within the nation’s borders.
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Production and Gross
Domestic Product
Intermediate Goods
Goods used up in producing final goods.
Final Good
A good sold to its final user.
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Production and Gross
Domestic Product
Flow Variable
A measure of a process that takes place over a
period of time.
Stock Variable
A measure of an amount that exists at a moment in
time.
© 2001 South-Western, a division of Thomson Learning
Production and Gross
Domestic Product
Expenditure Approach: Measuring GDP by adding
the value of goods and services purchased by each
type of final user. GDP = C + I + G + NX.
Consumption (C): The part of GDP purchased by
households as final users.
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Production and Gross
Domestic Product
Capital Stock: The total value of all goods that will provide
useful services in future years.
Private Investment (I): The sum of business plant and
equipment purchases, new home construction, and
inventory changes.
Net Investment: Total investment minus depreciation.
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Production and Gross
Domestic Product
Government Purchases (G)
Spending by federal, state, and local governments
on goods and services.
Transfer Payment
Any payment that is not compensation for
supplying goods or services.
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Production and Gross
Domestic Product
Net Exports (NX)
Total exports minus total imports.
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Production and Gross
Domestic Product
Value Added
The revenue a firm receives minus the cost of the
intermediate goods it buys.
Value-Added Approach
Measuring GDP by summing the value added by all
firms in the economy.
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Production and Gross
Domestic Product
Factor Payments
Payments to the owners of resources that are used
in production.
© 2001 South-Western, a division of Thomson Learning
Production and Gross
Domestic Product
Factor Payments Approach
Measuring GDP by summing the factor payments
made by all firms in the economy.
GDP = Wages and salaries + interest + rent + profit
= Total household income
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Production and Gross
Domestic Product
Nominal Variable
A variable measured without adjustment for the
dollar’s changing value.
Real Variable
A variable adjusted for changes in the dollar’s
changing value.
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Production and Gross
Domestic Product
We use GDP in the short run to alert us to recessions and
give us a chance to stabilize the economy and, in the long
run, to tell us whether our economy is growing fast enough
to raise output per capita and our standard of living, and
fast enough to generate sufficient jobs for a growing
population.
© 2001 South-Western, a division of Thomson Learning
Production and Gross
Domestic Product
Nonmarket Production
Goods and services that are produced, but not
sold in a market.
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Production and Gross
Domestic Product
Short-term changes in real GDP are fairly accurate
reflections of the state of the economy. A
significant short-term drop in real GDP virtually
always indicates a decrease in production, rather
than a measurement problem.
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Employment and
Unemployment
•Types of Unemployment
•The Costs of Unemployment
•How Unemployment Is Measured
•Problems in Measuring Unemployment
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Employment and
Unemployment
Frictional Unemployment
Joblessness experienced by people who are between jobs or
who are just entering or re-entering the labor market.
Seasonal Unemployment
Joblessness related to changes in weather, tourist patterns,
or other seasonal factors.
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Employment and
Unemployment
Structural Unemployment
Joblessness arising from mismatches between workers’ skills
and employers’ requirements or between workers’ locations
and employers’ locations.
Cyclical Unemployment
Joblessness arising from changes in production over the
business cycle.
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Employment and
Unemployment
In macroeconomics, full employment is achieved
when cyclical unemployment has been reduced to
zero. But the overall unemployment rate at full
employment is greater than zero because there are
still positive levels of frictional, seasonal, and
structural unemployment.
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Employment and
Unemployment
When there is cyclical unemployment, the
nation produces less output, and so some
group or groups within society must consume
less output.
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Employment and
Unemployment
Potential Output
The level of output the economy could
produce if operating full employment.
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Employment and
Unemployment
Labor Force
Those people who have a job or are looking for one.
Unemployment Rate
The fraction of the labor force that is without a job.
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Employment and
Unemployment
Involuntary Part-Time Workers
Individuals who would like a full-time job, but who are
working only part time.
Discouraged Workers
Individuals who would like a job, but have given up
searching for one.
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