Basic Economic Concepts

 The most basic measure of production is called the Gross Domestic Product (GDP)  There are two ways to measure it: 1.The income approach (you add up all the income earned from providing goods and services within an economy) 2.The expenditure approach (you add up all the money spent on goods and services within an economy) These two approaches should give the same answer! How to Measure Production

 Remember, the GDP measures the total production of an economy and includes the following things:  Consumer Spending (C)  Investment (I)  Government Spending (G)  Money spent on Exports and Imports (X – M) GDP = C + I + G + ( X – M) The Expenditure Approach

 Inflation refers to the continuous increase in prices.  When inflation occurs, your purchasing power is reduced.  When inflation is severe (high), economists call it hyperinflation. Inflation

 Inflation is measured by the government using the Consumer Price Index (CPI).  This tells us whether prices are rising or falling over a period of time.  CPI Explained CPI Explained How to Measure Inflation

 We can think of three types of GDP 1.Nominal GDP – the value that you get for any given period of time. 2.Real GDP – the value of the GDP adjusted for inflation 3.Per Capita Real GDP – Real GDP per person. Back to GDP

 The unemployment rate is the measure of the percentage of the labour force that is involuntarily unemployed  The Labour Force includes all people who have employment or who are actively seeking employment. Unemployment

Unemployment Rate= unemployed workers x 100 labour force Example: If Canada’s labour force was and the number of unemployed was , what is the unemployment rate? (Answer = 8.01%) How to Measure Unemployment

 The GDP is widely thought of as a measure of the wealth of a country.  Some economists think that it cannot truly capture the wealth due to excluded activities.  Read the handout (p ) for some ideas. Measures of Wealth

 Do some research on other ways of measuring wealth.  There are two that are often referred to by the media and economists (The United Nation’s Human Development Index (HDI) and the Genuine Process Indicator (GPI)) Other Measures