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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.

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Economic Measurements Overview

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  1. Economic MeasurementsOverview

  2. 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

  3. Business Cycle4 phases

  4. 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.

  5. 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.

  6. 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%

  7. Components of GDPC+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)

  8. Calculating GDP • Two approaches – income approach and expenditure approach • Income approach = • Wages + rents + interest + Profits = GDP • Expenditure Approach • C+I+G+Nx =GDP

  9. GDP By Component -4% 20% 71% 12%

  10. 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)

  11. Business Cycles

  12. 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.

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