Transcript BusinessCycle Indicators AsAd

Warm-up: Get a yellow text
1.
2.
3.
4.
What does GDP stand for?
How do we calculate GDP?
What do we use to measure inflation?
How do we measure unemployment?
Begin Unit 3 Macroeconomics
SSEMA1
b. Define Gross Domestic Product (GDP),
economic growth, unemployment,
Consumer Price Index (CPI), inflation,
stagflation, and aggregate supply and
aggregate demand.
c. Explain how economic growth,
inflation, and unemployment are
calculated.
N.B. #2- Business Cycle and
Economic Indicators
1.What is GDP, inflation, and
unemployment? How is each calculated?
2.What are the characteristics of the four
types of unemployment?
The Business Cycle
• The ups and downs of the
economic activity
• The good times and bad
times
• P. 310
The Business Cycle
4 phases
1. Expansion- increasing
GDP and growth
2. Peak- the top of the
expansionary periodlowest unemployment
3. Contraction- decreasing
GDP-increasing
unemployment
4. Trough- “the bottom” of
the contraction
The Business Cycle
Peak
contraction
Expansion
Trough
Economic Indicators
1. GDP
2. Inflation
3. Unemployment
MEASURES OF ECONOMIC
PERFORMANCE
• GROSS DOMESTIC PRODUCT
(GDP): total value of a country’s annual
output of goods and services sold for
final use. Only end use goods are
counted.
• GDP = sum of Consumption,
Investment, Government Spending and
Net Exports (exports – imports)
GDP
• Consumption –
• Investment –
National Government
Spending
• National Defense
• Social Security: payments to aged, disabled,
and retired persons
• National Debt
• Income Security
• Medicare: health care program available to all
senior citizens regardless of income
• Health: medicaid – medical insurance
program for low income persons
National Government
Spending
Net Export
• Exports – Imports
Gross Domestic Product
• Per Capita GDP
– GDP of a Country / Population
Inflation
• How is it calculated: Consumer Price
Index (CPI)
Unemployment
Question 1
What type of unemployment?
• Construction
workers are laid off
for the winter, but
plan to return to
work when the
weather is better.
Question 2
What type of unemployment?
• Workers are laid off at a Pog factory. A
downturn in the economy has lowered
demand for luxury items.
Question 3
What type of unemployment?
• The United States has lost
manufacturing jobs as a result of a
change to a service-oriented economy.
Question 4
What type of unemployment?
• A fast-food worker graduates from
college and quits his job to look for a
better career.
Question 5
True or False?
Unemployment in the U. S. has recently
been higher than 8 percent.
Quiz!!
1. In your own words, describe what
GDP attempts to measure.
2. Explain the formula for calculating
GDP.
The Business Cycle
Peak
contraction
Expansion
Trough
The Business Cycle
Recession
Decline in real GDP for 6+ months
The Business Cycle
Recession
• Worst in 1929-1933 (33%
decline in GDP)
• 10 in US since 1945
The story of Peorgia
• Work with a partner who has the same
numbered handout as you do.
• Calculate all the economic indicators for
Peorgia
• We will work with this more soon!
The story of Peorgia
• Work with your group to determine
which phase of the business cycle
Peorgia is in
• Create a skit involving all group
members that shows what life might be
like during this phase of the bussiness
cycle.
MACROECONOMIC GOALS
LOW UNEMPLOYMENT
LOW INFLATION
STABILITY
GROWTH
ECONOMIC GROWTH
Defined by sustained
increases in GDP adjusted
for inflation
Overview
• Aggregate Supply and Demand
• Supply and Demand at the MACRO
level
Aggregate Supply
The amount of GDP an
economy will produce at
each and every price level
Aggregate Supply
Price level
AS
Output
Aggregate Demand
Amount of GDP that will
be demanded at different
price levels
Aggregate Demand
Price level
P
AD
O
Output
Aggregate Supply and
Demand
AS
Price level
Equilibrium!
P
AD
O
Output
Key learning: When aggregate
demand is equal to
aggregate supply at a level
that just employs all
available productive
resources with no change in
price level, the economy is at
full-employment, noninflationary equilibrium
Aggregate Supply Determinants
1. Cost of inputs (ex.the cost of oil
falls!)
2. Productivity (ex. we get better
computers!)
3. Government regulations (ex. We
have to spend money to clean
up pollution!)
Aggregate Supply Shifters:
Change in cost of inputs (domestic or imported)
Change in productivity
Government regulations
Price level
AS1
Output
AS2
Aggregate Demand
Determinants
1.Consumer Spending
2.Investment Spending
3.Government Spending
Aggregate Demand Shifters:
Change in Consumer Spending
Change in Investment Spending
Change in Government Spending
Price level
P
AD1
O
Output
AD2
Aggregate Supply and
Demand and the Business
Cycle
• Complete the chart on your paper
• For AD and AS, predict if there will be
an increase, a decrease, or no change.
• Also, state if the curve will shift to the
right or to the left.
Aggregate Supply and
Demand and the Business
Cycle
We can try to stimulate the
economy by manipulating
the AD and AS curves.
When AD is below full-employment
production falls and unemployment
results
AS
Price level
P
AD
O
Output
Aggregate Supply and
Demand
AS
Price level
P
AD
O
Output
Unemployment!!
Aggregate Supply and
Demand
AS
Price level
Equilibrium!
P
AD
O
Output
Aggregate Supply and
Demand and the Business
Cycle
We want to move the
curves back to the fullemployment noninflationary equilibrium!
How Can We Shift the Curves
and Help (Hopefully) the
Economy?
Two Tools:
1. Fiscal Policy
2. Monetary Policy
Expansionary Policy
Increases Demand
AS
Price level
P
AD
O O2
Output
Warning!!!
• Demand-Pull Inflation:
Rise in the price level
when agg. Demand
exceeds agg. Supply.
Demand-Pull Inflation
AS
Price level
P2
P
AD2
AD
O O2
Output
Warning!!!
• Cost-Push Inflation:
Rise in the price level due
to increase in costs of
production (shifts
agg.supply curve left).
Cost-Push Inflation
AS2
Price level
AS
P2
P
Equilibrium!
AD
O2 O
Output
Aggregate Supply and
Demand
AS
Price level
Equilibrium!
P
AD
O
Output
The Business Cycle
1. Be sure to label all points on the
B. C. graph
2. During which phase is production
increasing?
3. During which period is
unemployment likely to be lowest?
Why?
The Business Cycle
As an economy moves from
recession to expansion, what is
likely to happen to
Wages?
Peak
Investments?
Employment?
Profits?
Trough