GDP
- Market value of all final goods and services produced within a nation in a given year
- Whats not included?
- Intermediate Goods
- Goods that require further processing before final
- Used (or Second Hand) Goods
- Purely financial Transactions (Stocks and Bonds)
- Unreported business activity
- Illegal Activites
- Nonmarket Activity (Volunteering or Babysitting)
- Transfer Payments. (Scholarships, Welfare etc)
- Whats included?
- C- Personal Consumption Expenditures
- IG- Gross Private Domestic Investments
- New Factory epuipments, Factory Equipment Maintenance etc.
- G- Government Spending (20% of the Economy)
- XN- Net Exports (Exports-Imports)
- Ways to Calculate GDP
- Expenditure Approach
- Add up all spending on Final Goods and Services produced in a given year
- Formula: GDP=C+IG+G+XN
- Income Approach
- Add up all income that resulted from selling all final goods and services in a given year
- Formula:
GDP=Wages+Rents+Interest+Corporate Profits+Indirect Business Tax+Depreciation - Net Domestic Product: (NDP)
- GDP-Depreciation
- Net National Product: (NNP)
- GNP-Depreciation
- GNP=GDP+Net Foreign Factor Payment
- Budget:
- Gov't purchase of Goods and Services+Tansfer Payments-Gov't Tax and Fee Collection
- If you recieve a number less than zero there is a surplus
- If you recieve a number greater than zero there is a deficit
- Trade:
- Exports-Imports
- If you recieve a figure less than zero there is a Deficit
- If you revieve a figure less than zero there is a Surplus
- National Income
- Comp. of Employee+Rents+Interest+Proprietors income+Corporate Profits
- or, GDP-Indirect Business Taxes-Depreciation-Net foreign factor pay
- Disposable Personal Income
- National Income-Personal Household Taxes+Government Transfer Rights
- Nominal GDP (Inflation)
- Value of output produced in current crisis
- Can increase from year to year if output or price increase
- Real GDP
- Value of output produced in constant or base year crisis
- Adjusted for Inflation
- Can increase from uear to uear only if output increases
- Used to measure real Economic Growth
- GDP deflator
- Price index used to adjust from Nominal to Real GDP
- Nominal GDP/Real GDP x 100
- In base year GDP deflator aleays equals 100
- For years after base year GDP deflator is greater than 100
- For years prior to base year, GDP deflator is less than 100
- Ex:
- Consumer Price Index (CPI)
- Most commonly used measurement for iinflation
- Measures cost of market basket of goods for a typical Urban American Family
- Cost of Market Masket of Goods in given year/Cost of Market basket of Goods in Base year x 100
- Inflation
- Price index in year 2-Price Index in year 1/Price index in year 1 x 100
- Interest Rate
- Nominal Rate
- % of increase in money the borrower must pay lender for loan
- Not adjusted for Inflation
- Fisher Method: Nominal Interest rates= Expected Interest+Inflation pay
- Real Interest Rate
- % increase in Purchasing power borrower must pay lender for loan
- Adjusted for Inflation
- Nominal Interest Rate-Inflation=Real Interest Rate
- Cost of Living Adjustment (Cola)
- Gives automatic wage increase when inflation occurs
- Unemployment
- Failure to use available resources, particularly labor, to produce desired goods and services
- Labor force
- 16 years of age
- Able and Willing to Work
- Employed and Unemployed
- Not in Labor Force
- Military
- Students
- Retirees
- Disabled
- Jailed People
- Mental Institutionalized people
- Homemakes
- Those Not looking for work
- Unemployment Rate
- Ideal= 4-5% (Full Employment)
- number of unemployed/number of employed and unemployed
- Type of Unemployment
- Frictional Unemplloyment (Temporarily Unemployed)
- Have transferable skills
- Searching for better opportunity ex: students
- Structural
- Changes in structure of labor force making skill/jobs obsolete
- Don't have transferable skills
- Seasonal Unemploymeny
- Work depends on time of year and nature of job
- ex: school bus drivers
- Cyclical Unemployments
- Results from economic downturns or recession
- As demand for goods and services fall, demand for labor falls as well
- Frictional + Structural = Natural Rate of unemployement
- Totally unavoidable
- Full employment means there are no Cyclical unemployment
- GDP Gap
- The amount vy which actual GDP falls short of Potential GDP
- Okons Law
- For every 1% in which actual unemployement rate exceeds the Natural rate of unemployment a GDP gap of 2% exists
- Rule of 70
- Used to determine the years it takes for a valur to double, given a particular anneal growth rate by deviding 70 by the percentage given.
