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Chapter 11
Gross Domestic Product and Business Cycles
Micro. Vs Macro.
• Microeconomics – the study of _______________ of the economy.
Example: supply and demand for beef.
• Macroeconomics – the study of the economy _________________
Example: the national debt
Gross National Product
Developed by __________________ (father of modern economics) in
effort to create a ___________________________ system in the 1930’s.
GNP defined as the total value of all ___________________________ in
our economy in __________________.
GNP statistic is _______________ today. Instead we use an updated
statistic called Gross Domestic Product (GDP).
Gross Domestic Product
GDP is the total value of all goods and services produced in our economy
by ______________________________________ in one year.
GDP includes ________________________________________
Example: Honda in Marysville
GDP does not include production of ____________________________
Example: Ford plant in Canada
GDP measures how much the economy is _____________ by measuring
its _____________________.
Sectors of GDP
C
=
I
=
G
=
(I – X) =
______
________________ – G & S consumed by ______________
________________ – G & S consumed by ______________
G & S consumed by __________________
________________ – _________________
_______________ impact when I > E
_______________ impact when E > I
= C
+
I
+ G
+ (I – X)
Not Included in GDP
•
•
•
________________ products – tires on a new car are ___________ (a
part of the price of the new car), but ______________________ are
included.
___________________ items – used cars, garage sale items not
included when sold.
_________________________ – welfare, foreign aid, social security.
Problems With GDP Statistic
• Dealing with large numbers (_________________) requires lots of
______________________
• Does not measure ________________ productivity such as: mowing the
grass, building a deck, washing own clothes.
• GDP does not include _______________________ which may account
for half of all production!!!
• Most Importantly… GDP may increase without realizing any
______________________ (increased ____________)
GDP vs. Real GDP
GDP can increase if the _______________ increases, even though no
__________________ were produced and sold.
_____________________= GDP – ______________
________ GDP is a better measure of _______________________.
Historical and Current GDP
Measured _________________ by the federal government.
Current and Historical GDP
U.S. Department of Commerce. Bureau of Economic Analysis - Gross
Domestic Product (GDP)
Current GDP and Real GDP measured in 1996 dollars.
________________________________________________________
Business Cycles
Business Cycles can be charted by observing the changes in Real GDP
• Recession: Real GDP falls for ______________ consecutive quarters
• Expansion: Real GDP ____________ for two consecutive quarters
• Depression: A __________________________ recession with high
unemployment.
• Trough: the ___________________ in GDP
• Recovery: GDP is ________________ as the economy head toward
___________________
• Contraction: A period when GDP is ______________.
The Great Depression
• Began on “_____________________” October 29, 1929
• Banks had depositor’s money invested in __________________,
•
•
•
•
•
keeping _______________________________.
When __________ occurred in the market, everyone tried to
____________________ at same time.
Reason for panic… investors had experienced a huge period of
____________________ and ___________ stock values (The
________________ 20’s) and felt that prices had ___________.
When depositors realized what was happening, they went to their banks
__________________________.
Of course, the banks didn’t have the money in reserve and what they had
invested was worth ________________________ .
Result: Banks lost people’s _____________________.
Banks had no money for _________________.
No one had money to buy goods and services, creating huge
unemployment.
Great Myths of the Great Depression
Government Laws to Prevent Another Depression
• ______________________________: banks are required to keep a
certain amount of depositor’s money _______________.
• Government can ___________ the stock market to______________.
• FDIC (Federal Deposit Insurance Corporation) protects money invested
in ____________________ up to $___________ per account.
__________________________ pays if a bank loses depositor’s money.
Historical and Current Cycles
Business Cycle Expansions and Contractions
Business Cycles
Generations and Business Cycles …see graphs at bottom showing cycles.
Since 1945…
Average Contraction _____ months
Average Expansion _____months
Average Cycle _______ Trough to Trough or Peak to Peak
From July 1990 to March 2001 ______________
Currently __________________________________
Predicting Cycles
Index of ___________________________ Indicators
• A _________________ statistic
• Predicts next ________________
• If the index drops ____________________ quarters, will have a
recession in 6-12 months.
• There is also the Index of _________________ Indicators that tells us
where we are now and the Index of ___________________ Indicators
that tell us where we have been.
Current Index of Leading Economic Indicators
• Index of Leading Economic Indicators
• Census Economic Briefing Rooms
Current Data on Index of Leading Economic Indicators.
______________________________________________________
Benefits of Growth in GDP
•
More people working = more ________________________
– Decreases _______________________________
– Less spending on _____________________
– More ___________ for people to spend on ____________ goods
• Increases our ____________________________ – the amount of
luxuries and recreation we have