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Economic Measurements

Economic Measurements. How GDP, GDP per capita, and labor productivity measure economic performance. Measuring Economic Growth. Economic growth - a steady increase in the production of goods and services in an economic system. The US has 7% of the world’s land

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Economic Measurements

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  1. Economic Measurements How GDP, GDP per capita, and labor productivity measure economic performance.

  2. Measuring Economic Growth Economic growth - a steady increase in the production of goods and services in an economic system. The US • has 7% of the world’s land • has less than 5% of the world’s labor • produces more than 20% of all goods & services

  3. Gross Domestic Product Formerly called Gross National Product (GNP) The total dollar value of all final goods & services produced in a country during one year. • Includes • Consumer spending for food, clothing, housing • Business spending for buildings, equipment, supplies • Govt. agency spending for employee pay, supplies • Does NOT include • Value of work you do for yourself

  4. Gross Domestic Product In order to make fair & accurate comparisons across different years, current prices must be adjusted. • Base year • The year chosen to compare an item • Constant Dollar GDP • The value of GDP after taking out the effect of price changes (sometimes called Real GDP) If GDP is increasing from year to year, it indicates a healthy, growing economy.

  5. GDP Per Capita Output per person • =GDP/total population • Increasing indicates growth • Decreasing may indicate economic trouble

  6. Labor Productivity Productivity = the # of items per worker 3 things can improve productivity • Improved capital resources • Worker training • Management techniques Productivity increase: an increase in goods & services produced from the same amounts of labor Increases in productivity have gotten smaller.

  7. The Business Cycle • The movement of the economy from one condition to another and back again. • Has four phases: • Prosperity • Recession • Depression • Recovery

  8. The Business Cycle – Prosperity Phase • Unemployment is low • Most people who want to work are working • High demand for goods & services • Businesses produce record numbers • Wages are good • Rate of GDP growth increases

  9. The Business Cycle – Recession Phase • Unemployment begins to rise • Demand for goods & services begins to decrease • Rate of GDP growth slows for two or more quarters of the calendar year • Can vary in severity and length

  10. The Business Cycle – Depression Phase • Period of prolonged high unemployment • Weak sales of goods and services • Business failures • GDP falls rapidly

  11. The Business Cycle – Recovery Phase • Unemployment begins to decrease • Demand for goods and services increases • GDP begins to rise again

  12. Inflation and Deflation • Inflation – a sustained increase in the general level of prices. • One measure of inflation is the Consumer Price Index • Mild inflation can stimulate economic growth • Deflation – a decrease in the general level of prices • Usually occurs during periods of recession & depression. • Product prices are lower but people have less $

  13. Our Economic Future • Growth determined by ability to produce output. • Solutions for serious economic problems need to be found • Access to health care • Housing • Traffic • Crime • Unemployment • Economic Growth must continually increase to maintain or increase our standard of living.

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