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Students will identify gross domestic product. Students will describe the relationship between GDP and the business cycle Students will explain how the unemployment rate is determined Students will analyze how the inflation rate is determined Gross Domestic Product (GDP) - The market value of all final goods and services produced annually in a country. Measures the nation’s total economic output Includes Dollar Value Consumers + Government + Business + Net Exports Total of the selling prices Final Goods and Services Products in the form sold to consumers Not in an intermediate form Products produced within a country’s borders Includes products produced by a foreign owned company that produces the product in the US Produced in a calendar year – Jan1 – Dec 31 of a given year GDP counts only new production and excludes the following: Second hand transactions Sales of used cars Sales or homes constructed years ago Any other sales of previously produced products GDP counts only new production and excludes the following: Transfer payments Welfare Social security Veterans benefits Unemployment compensation All these are considered nonproductive from an economics standpoint GDP counts only new production and excludes the following: Stock Market transactions Represent only the exchange of ownership are not new production Nonmarket Activities Excludes unpaid activities Homemakers Child-rearing Home repairs It would be impossible to place dollar values on these activities GDP counts only new production and excludes the following: Underground activities Illegal gambling Stolen cars Illegal drug sales Under-the table or off-the-book transactions Business Cycle – the rise and fall of economic activity through period of expansion and recession Reflects the ups and downs of the nation’s real GDP (GDP adjusted for changes in prices over time) Real GDP falling Recession Real GDP rising Recovery (expansion) Unemployment Rate – the percentage of the civilian labor force that is actively seeking work but is not employed Identifying the US Labor Force Starts with the total US population 16 years or older Do not count those that are institutionalized(prison) or in the military – they are subtracted out Leaves us with the total civilian noninstitutionalized population (16 years and older) Identifying the US Labor Force Within the noninstitutionalized population (16 years +) we have Nonlabor force Fulltime students Parents who stay home to raise children Retirees Discouraged workers – have tried to get jobs in past, but have given up Total Labor force – those who are willing and able to work Employed Unemployed – want to work, but are unable to get a job Employed – people who have jobs Unemployed – people age 16 or older actively looking for a job but have not found one Does not include underemployed Working in a job the individual is overqualified for Working part time when full time is desired National Unemployment Rate Percentage of the US labor force that is unemployed How rate is determined 60,000 households selected to be representative of the US population (sample of population) Each month the US government interview persons in the sample group to determine what percentage are unemployed Computation Unemployment Rate = Unemployed ÷ Civilian Labor Force X 100 Recession Recession Inflation – the increase in the average price level for goods and services in the economy With inflation, money loses purchasing power Example – If inflation is 5%, a $100 item you purchase this year will cost $105 next year Measuring Inflation Measured by the US government – Bureau of Labor Statistics (BLS) Measuring Inflation Measurement tool used is the Consumer Price Index (CPI) Uses a list of goods and services (called a market basket) that are commonly bought by consumers Contains thousands of specific items that represent what average urban households purchase Each month the Bureau of Labor Statistics (BLS) update the prices of items in the basket and calculate its cost that month Using a consistent group of goods and services makes it possible to see how prices are changing over time CPI Market Basket Categories Food and beverages – items purchased at the grocery store Housing – house prices, rentals Apparel – clothing, shoes, etc. Transportation Medical care Recreation – goods, events Education and communication Other Inflation Rate Changes in the overall price of the CPI market basket Shows the percentage increase in the average price of the economy’s goods and services Occasionally may show periods of deflation – a period of decreasing prices Is due to demand being sluggish and occurs when consumer spending is declining due to fear, pessimism, or reduced income The rise and fall of economic activity through periods of expansion and recession is known as the __________. A. B. C. D. business cycle percentage change unemployment rate consumer price index The rise and fall of economic activity through periods of expansion and recession is known as the __________. A. B. C. D. business cycle percentage change unemployment rate consumer price index People age 16 years or older who are working in a job for which they are overqualified for are said to be __________. A. B. C. D. underemployed full time student nonlabor force retired People age 16 years or older who are working in a job for which they are overqualified for are said to be __________. A. B. C. D. underemployed full time student nonlabor force retired The percentage increase in the average price of the economy’s goods and services is known as __________. A. B. C. D. Market basket Price index Deflation rate Inflation rate The percentage increase in the average price of the economy’s goods and services is known as __________. A. B. C. D. Market basket Price index Deflation rate Inflation rate The percentage increase in the average price of the economy’s goods and services is known as __________. A. B. C. D. Price index Dollar value Business cycle Market basket The percentage increase in the average price of the economy’s goods and services is known as __________. A. B. C. D. Price index Dollar value Business cycle Market basket When the country’s GDP falls, the economy experiences a __________. A. B. C. D. peak trough recovery recession When the country’s GDP falls, the economy experiences a __________. A. B. C. D. peak trough recovery recession