Transcript Economic Indicators

Economic Indicators
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Macro-Economic Goals
• Economic Growth
• Price Stability
• Full Employment
Major Indicators
1. Gross Domestic Product (GDP):
•
$ value of all final goods/services within a nation
2. Housing Starts:
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Construction sector activity
3. Retail Sales:
•
Value of goods bought in retail outlets
4. Unemployment Rate:
•
% of workers without jobs (seeking)
Major Indicators
5. Consumer Price Index (CPI):
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Current cost of a “market basket” of goods-->
relative to cost in other years (INFLATION)
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How has value changed?
INFLATION: general rise in prices (reduces purchasing power)
1. Hyper- severe 500%/yr (rare)
2. Galloping- 100-300%/yr
3. Creeping- 1-3% (common)
Ex: If in 1913 I purchased an item for .25 cents then in 2010 that same item would cost $5.50. The rate of inflation change would be $2098.3%
Ex: If in 2000 I purchased an item for .25 cents then in 2010 same item would cost .32 cents. The rate of inflation change would be 26.4%
Ex:
Major Indicators
6. Interest Rates:
•
Cost of borrowing money for investments
7. Trade Balance:
•
Trade Balance = X - M
8. Exchange Rate:
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Value of American money against other
nations
GDP Elaboration
• Gross Domestic Product:
 Total production or output of final goods and
services
• Intermediate Goods:
• Used to make final goods
Final vs. Intermediate Goods
• Final Goods and Services
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Manicures
Bread
Cruise missile
New factory
Dresses
Increase in automobile inventory
• Intermediate Goods
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Window glass in new automobiles
Lumber in a new house
Screws used in a cruise missile
Flour for making bread
Cloth for making dresses
DON’T COPY
GDP
• Only measures market production
 Need to be paid
• Ex: Not washing car or cooking dinner at home
 Excludes illegal activity
 Does NOT include 2nd hand sales
• Ex: Used cars “double counting”
Y= C+G+I+(X-M)
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Y = GDP
C = Consumption
G = Government Expenditures
I = Investments
X = Exports
M = Imports
Computing GDP
• Most market prices increase over time (inflation)
• Nominal GDP:
•
 Measure using prices in current year NOT adjusted for inflation
• Actual prices consumers pay
Real GDP:
 Measure using a common level of prices set in a designated
“base year”
Real GDP
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Nominal GDP
Year 1
100 Bushels $100.00
x $1.00
Year 2
110 Bushels $132.00
x $1.20
10% Real
Increase in
Production
32% Nominal
Increase in
Production
Gross National Product
(GNP)
• Measures total value of production for all
businesses owned by citizens
 EX: Japanese plant in Iowa
• GDP not GNP