Transcript Measuring Economic Growth

AP Macroeconomics
Circular Flow & Business Cycle
How the U.S. Economy works
Circular Flow Chart
•The circular flow describes how goods, services and
money flow through a free market economy
• Consumers decide what to BUY!
Demand Curve
HOUSEHOLDS
• Producers decide what to SELL (produce))
FIRMS
Supply Curve
5 Factors of Production
• Resources used to make goods & services
1) Land2) Labor3) Physical Capital4) Human Capital
5) Entrepreneurship-
To open a coffee shop:
Land = Beans, store, etc…
all basic natural resources
human work/labor
previously produced goods
education, skills, etc…
managerial ability & risk taking
Labor = worker
Physical Capital =
Coffee Machine
Human Capital =
Skills of workers
Entrepreneurship= Skills of owners
Product & Factor Markets
Product Market:
where any good or service is sold
Factor Market:
where factors of production are exchanged
Consumers are demand in product market
Producers are demand in factor market
Circular flow Chart
Revenue
Goods
& services
sold
PRODUCT
MARKET
Spending
Goods and
services
bought
End Result:
FIRMS
Rent is paid for Land
Wages is paid for Labor
Profit is paid to Entrepreneurs
Factors of
production
Wages, rent,
and profit
HOUSEHOLDS
FACTOR
MARKET
Labor, land,
capital & entrepreneurship
Income
= Flow of inputs
and outputs
= Flow of dollars
Business Cycle
Historically every economy moves through cycles
Peak
.
GDP
Trough
Time
Circular Flow & Business Cycle Worksheet
Spending
Revenue
Goods
and services
sold
PRODUCT MARKET
Goods and
services
bought
HOUSEHOLDS
FIRMS
Labor, land,
capital & entrepreneurship
Factors of
production
FACTOR Market
Wages, rent,
and profit
Income
= Flow of inputs
and outputs
= Flow of dollars
Review: The circular flow
Revenue
1) Europe grows faster
2) Stock market falls -25%
Goods
& services
sold
PRODUCT
MARKET
FIRMS
Spending
Goods and
services
bought
HOUSEHOLDS
3) Interest rates rise 0.0% to 0.5%
Factors of
production
Wages, rent,
and profit
FACTOR
MARKET
Labor, land,
capital & entrepreneurship
Income
= Flow of inputs
and outputs
= Flow of dollars
Review
Business Cycle & Circular Flow
Peak
Spending
Revenue
GDP
Goods
and services
sold
PRODUCT MARKET
.
Goods and
services
bought
.
HOUSEHOLDS
FIRMS
Labor, land,
capital & entrepreneurship
Factors of
production
FACTOR Market
Wages, rent,
and profit
Income
= Flow of inputs
and outputs
= Flow of dollars
Time
Trough
U.S. Economy needs +125,000 new Jobs
each month to keep unemployment unchanged!
Only GDP > 2.0% lowers unemployment
Economists often Disagree
• Do tax cuts lead to more long run economic growth?
• Does large Gov’t debt eventually lead to a financial crisis?
• Will raising the minimum wage lead to significant job loss?
The answer to most economic questions is:
IT DEPENDS!
= GDP adjusted for inflation
2014 = + 2.4%
2013 = + 1.5%
2012 = + 2.2%
1st six months of 2016 = + 1.0%
2015 = + 2.1%
Alphabet Economic Recoveries
First Video
2009
• http://www.youtube.com/watch?v=d0nvoQL4By8
• Second Video 2011
https://www.youtube.com/watch?v=VDaKCBe-380