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Gross Domestic Prouct
Market value of FINAL goods and services produced within the borders in a year.
- Finished good and services made for ultimate.
- Intermediate Goods- Goods and services used as inputs for the production of final goods.
GDP By Expenditure
- national income accounting method.
- (durables, non-durables, and services)
- Personal consumption expenditures compromise total spending by housholds.
- -Consumer spending
- Durable-automobiles, appliances, furniture bc last longer than three years
- Non-Durable-less than three years, food clothing
- Services- largest category include recreation, legal advice, medical treatment, education
Gross Private Domestic Investment (I)
- -include inventory change and fixed I
- This national income account includes "gross" (all) "private" (not government) "domestic"(not foregin) spending by business for investment in assets that are expected to earn profits in the future.
- 1. fixed investment expenditures for newly produced capital goods, such as commercial and residential structures, machinery, equipment and tools
- 2. change in business inventories- change in spending for unsold finished goods.
Government spending ("G")
- -excludes transfers, inludes salaries of gov't employees
- -the value of good and services government purchhases at all levels measured by their costs.
- -only new goods, not social security.
- Exports=X-expenditures by foreigners for U.S domestically produced goods.
- Imports=M-dollar amount of purchases of Jampenese automobiles
- -the negative sign indicates the the United States is spending more dollard to purchase goregin products than it is receiving from the rest of the world for U.S goods.
- =earning of households from contributing to production (+IBT)
- =compensation of employees+interest+rent+profit+indirect business taxes
GDP by income
Real versus Nominal GDP
- Nominal GDP is the value of all final goods based on the prices existing during the time period of production. It's referred to as current-dollar or money GDP.
- It grows in three ways-Output rises, prices remain the same. Prices rise and output is constant. Typical case both output and prices rise.
- Measuring the difference between changes in output and changes in the prive level involoves making an imporant distinction beteen nominal GDP and real GDP
- Real GDP is the value of all final goods produced during a given time period based on prices existing in a selected base year.
- The toal income recieved by households that is available for consumption, saving, and payment of personal taxes
- income household receives
Per Capita GDP
- Real GDP divided by population
- PI =Natinal income+transger payments-IBT-FICA-undistributed profit.
Personal disposable Income
- amount of income that housebolds actually have to spend or save after payment of personal taxes. Disposabtle, or after tax income is equal to personal income minus personal taxes, peronal property taxes, and inheritance taxes.
- PI-income tax
Busines cycle terms.
- trough- lowest part
- peak- The Max GDP rises after rising in a recovery
- expansion/recovery-upturn in business cycle
- contraction/recession-downturn in business cycle-GDP declines +unemployment rises
- leading= varibales that change before real GDP changes
- Coincident indicates- varibales change at the same rate as GDP
- lagging= change after real GDP
- Employment- worked at least one hour in the week
- Unemployment- not working and looked for a job for 30 days
Civilian labor force
the number of people 16 years of age and over who are either employed or unemployed, excluding members of armed forces and other groups listed in "persons not in labor force" category
The rate of unemployment
- Unemployment rate=unemployed
- over civilian labor force ties 100
person who wants to wrok but who has given up searching for work because he or she believes there will be no job offers.
Types of Unemployment
- Frictional-no job, but looking and soon to get one
- Structual- do not have the skills required for existing jobs.
- Cyclical-lack of jobs during business cycle
- cyclincal UE=0
- called the natural rate of employment.
Costs of Unemployment
- loss of potential output measure by the GDP gay.
- - nonmonetary costs.
- -lose feeling of worht.
- -self image suffers
- -suicides, crimes, mental illness, heart attacks and other maladies.
- -despair, breakups and political rest.
- The difference between actual real GDP and potential or full employment real GDP
- GDP gap=actual real GDP-potential real GDP
increase in the general price level of goods and services in the economy
decrease in the general (average) price level of goods and services in the economy
reduction in the rate of inflation
an extremely rapid rise in the general price level.
Consumer Price Index
- An index that measures changes in the average prices of consumer goods and services.
- also known as cost of living index
Wage Price Spiral
a situation that occur when increases in nominal wage rates are pased in higher prices, which in turn, result in even higher nominal wage rates and prices.
Cost push inflation
- a rise in the general price level resulting from an increase in the cost of production.
- example: the OPEC sharply increases the price of oil, this action means a significant increase in the cost of producing goods and services.
Demand Pull Inflation
- rise in the general price level resulting from an excess of total spending (demand).
- -occurs at or close to full employment, when the economy is operating at full capacity.
Rate of Inflation
The greater rate of inflation, the greater the decline in the quantity of goods we can purchase with a given nominal income, or money income.
way to end inflation
real interest rates, real income?
- The nominal interest rate is the actual rate of interest earned over a period of time.
- The real interest rate the nominal rate of interest minus inflation rate.
THe theory that supply creates its own demand.
believed that a continuing deprssion is impossible because markets elminate persistent shortages or surplases.
John Manyard Keynes
publised General Theory of Employment, Interest, and Money.
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