Download GDP – Gross Domestic Product

Chapter 4
ECONOMICS MEASUREMENTS
Goals
EXPLAIN how Gross Domestic Product (GDP), GDP per capita,
and labor productivity are used as measurements of economic
performance.
DESCRIBE the four phases of the business cycle.
DEFINE inflation and deflation.
Measuring Economic Growth
• Gross Domestic Product
• GDP Per Capita
• Labor Productivity
GDP – Gross Domestic Product
GDP includes three (3) major categories of expenditures:
1.
What consumers spend for food, clothing and housing;
2. What businesses spend for building, equipment, and supplies; and
3. What government agencies spend to pay employees and buy
supplies.
GDP Per Capita
• The more goods and services we produce, the healthier hour
economy gets
• To calculate GDP per capita:
GDP
Total Population
Labor Productivity
Productivity occurs when:
Quality of capital resources (primarily equipment)
Worker training
Management techniques
The Business Cycle
• Prosperity
• Recession
• Depression
• Recovery
Prosperity
• A phase of the business cycle
when most people who want to
working are working and
businesses produce goods and
services in record numbers
Recession
• A period where demand begins
to decrease, businesses lower
production of goods and
services, unemployment
begins to ride, and GDP
growth slows for two or more
quarters of the calendar year.
Depression
• A depression is a phase
marked by a prolonged period
of high unemployment, weak
sales of goods and services,
and business failures.
Recovery
• The phase in which
unemployment begins to
decrease, demand for goods
and services increases, and
GDP begins to rise again.
Inflation
• Inflation is a sustained increase in the general level of price.
• Scenario 1: Good and services are greater than the supply
• Example: When a large supply of money, earned or borrowed, is spent
for goods that are in short supply, prices increase.
• Result 1: Even though wages increase, the price of goods and services
rise faster and the wages cannot catch up.
• Result 2: If wages go up faster than prices, businesses tend to hire fewer
workers so unemployment worsens.
Inflation
• Inflation is a sustained increase in the general level of price.
• Scenario 2: Mild inflation (2%-3%) can stimulate economic growth.
• Example: Wages rise slower than the prices of products. The price of
the products sold are high in relation to the cost of labor.
• Result 1: The producer makes higher profits and tends to expand
production and hire more people.
• Result 2: The newly employed workers increase spending, and the total
demand in a economy increases.
Deflation
• A decrease in the general level
of prices
• Usually occurs in periods of
recession and depression.