GDP Business Cycles Economic Growth

 Average wage dropped from 55 cents per hour to 5 cents per hour  Unemployment shot to 35%  Toledo, Ohio – unemployment was 80%  Wasn’t just a U.S. depression, became worldwide because of decrease in trade  Poor economic conditions in Germany led to the rise of Adolf Hitler

 Stock market was the main economic indicator  Motivated economists to devise ways of measuring and predicting economic performance  Originally thought economy would regulate itself – (Adam Smith)  Great Depression changed people’s thoughts

 Social Security Act of 1935  Unemployment insurance  FDIC  Minimum Wage  Securities and Exchange Commission

 To check-up on the economies vital signs to see if we are meeting our goals

 Full employment  Stable prices  Economic growth

 Purpose of Economic Indicators: 1. Gives a complete evaluation of where the economy is headed 2. Measures the financial well being of the public 3. Each indicator is not accurate by itself 4. Look at all, get a good idea of what’s cookin’

 Average weekly hrs in manufacturing  Average weekly initial claims for state unemployment insurance  New orders for consumer goods/materials  Prices of 500 common stocks  Contracts /orders for plant and equipment  New building permits  Vendor performances (companies reporting deliveries)  Net change in inventories on hand/or order  Index of consumer expectations  Interest rate change US Treasury (less federal funds)  Money supply

 Gross Domestic Product (GDP)– real output The dollar value of all final goods and services produced within a country’s borders in a given year Dollar value – total of the selling prices of all goods and services produced in a country in one calendar year Final goods and services – products in forms sold to customers  Not those used in the production of the final good Better measure of American economic activity as it directly affects Americans in terms of labor, goods, and services consumption

 House constructed in 1982: counted in 1982, not when it is resold years later  Lumber, nails, sheet rock would not be counted in 1982 – only the final price of the house  Real estate fees would be counted  Cars assembled in Ohio by Toyota - counted  Cars assembled in Brazil by GM - not

 GDP = C + BI + G + (EX –IM) C = Personal Consumption BI = Business Investment G = Government expenditures EX = export spending IM = import spending (Note import spending is subtracted when calculating GDP.)

 Sector of the economy Household  Definition Expenditures or spending made by the household sector on goods for personal use  Examples TV sets, telephones, clothes, lamps, cars

 Sector of the economy Business  Definition Expenditures made by the business sector on goods used in producing other goods; also includes business goods  Examples Tools, machines, factories

 Sector of the economy Government purchases  Definition Expenditures made by federal, state, and local governments  Examples Paper, pens, tanks, planes

 Sector of the economy Foreign  Definition Expenditures made by foreigners for American- made goods  Examples Cars, wheat, computers

 Sector of the economy Foreign  Definition Expenditures made by Americans for foreign-made goods  Examples Cars, radios, computers

 Increase our productivity  Get the most out of our scarce resources  Technology

 Can’t measure things you do by yourself Lawn mowing, babysitting, cooking dinner  Black Market Activities Illegal drugs, weapons, stolen cars  Trades with friends Pokemon cards  Externalities Clean environment  Does not measure quality of life Divorce, health, crime, personal safety

 A.K.A. – standard of living The dollar value of all finished goods and services available per person  GDP/population  This is NOT how much a person makes in a year  Have to look beyond the numbers – just because the economy is doing well does not mean the society is

Top 1%Next 19%Bottom 80% %48.4%8.7% %46.5%6.6% %46.7%7.7% %45.9%7.0% %43.6%9.1% %51.5%8.8% %50.5%6.7%

 Changes in the money supply  Changes in business investments, residential construction, and government spending  Politics  Innovation  Dramatic changes to supply

 Peak Height of an economic expansion when real GDP stops rising Marked by a booming economy, full employment, inflation  Contraction Period of economic decline marked by falling real GDP  Trough The lowest point in an economic contraction, when real GDP stops falling  Expansion Period of economic growth, measured by a rise in real GDP

 Recession Two consecutive economic quarters where GDP decreases  Depression Very severe recession where there are large numbers of people out of work, acute shortages, and excess capacity in manufacturing plants Cartoon - Recession