Download Economic Measurements Overview

Economic Measurements
Overview
Economic Goals
• Standard of Living.
•
Are we better off than the previous
generation? How can we tell?
• Economic Growth
•
Usually measured by GDP
• Economic Security
•
Usually measured by unemployment rate
• Economic Stability
•
Usually measured by inflation
Business Cycle
4 phases
Economic Measurements
• GDP
• CPI
• Inflation
– Cost-push
– Demand-pull
– Push-Pull
• Unemployment
– Frictional
– Seasonal
– Structural
• You will need to know
the four basic
measurements by the
end of this unit.
Gross Domestic Product (GDP)
• Used to measure economic growth
– Defined: The total dollar value of all goods and
services produced in a country’s borders in a
given year.
– Represents the $ value of all FINAL GOODS AND
SERVICES
• No double counting
– Gas, not crude oil
– Only new products produced in that year.
Characteristics
• Used to measure changes in the amount of
goods and services produced in a nation.
• Compares different years
– Nominal GDP – measured in current prices.
– Inflation must be considered (dollar value
adjusted)
– Real GDP – adjusted for inflation to get real
increase or decrease in production
• GDP 4% - Inflation 2%, = Real GDP of 2%
Components of GDP
C+I+G+Nx
•
•
•
•
•
C = consumer spending
I = investment spending
G = government spending
Nx = net exports (Exports – Imports)
Which is the largest component of GDP?
– Consumer spending of course (roughly 67% of
GDP)
Calculating GDP
• Two approaches – income approach and
expenditure approach
• Income approach =
– Wages + rents + interest + Profits = GDP
• Expenditure Approach
– C+I+G+Nx =GDP
GDP By Component
20%
-4%
71%
12%
GDP Doesn’t measure…
• Products used at resources (intermediate goods)
– Ex.
• Measures cars, not the parts used to make them
• Bread, not the wheat used to make it.
• Non-Market Transactions
– Barter system
• Quality of products
• Second Hand Sales (used items, garage sales)
• Transfer payments (welfare, social security, etc)
Business Cycles
Four Phases of the Business Cycle
• In order to determine a trend, two quarters (6 months) are needed.
• Peak – high point in the business cycle. GDP is at it’s highest,
unemployment is low and inflation is starting to become a
problem
• Contraction – GDP decreasing, unemployment starting to rise,
recession or depression possible
• What’s the difference between recession and depression?
– Recession – fairly mild, short lived
– Depression – more severe, massive unemployment, longer
lasting.
• Trough – lowest point of the business cycle. Unemployment
highest and lots of pain and suffering.
• Expansion – recovery, GDP starting to rise, unemployment slowing,
hiring begins, the economy is on the mend.