Gross Domestic Product & Growth Gross Domestic Product-$ value of all goods and services produced within a year in a given country Calculating GDP Expenditure Approach-The amount spent on all goods & services Income Approach-Adds all of the incomes in the economy

Nominal vs Real GDP Nominal GDP-measured in current prices Real GDP-measured in constant, unchanging prices Limitations of GDP Nonmarket Activities Underground Economy Negative Externalities Quality of Life

Quality Life in the 70’s & 90’s

GNP Gross National Product Derived from the GDP Annual Income earned by U.S. firms Market value of all goods and services produced in 1 year

NNP Net National Product NNP is the GNP minus the cost of depreciation Doesn’t reflect taxes After subtracting taxes we get the NI or National Income

Personal Income and Disposable Personal Income PI-How much $ is paid to households DPI-how much we have to spend after paying taxes

Influences on GDP Aggregate Supply-the total amount of goods and services in the economy available at all price levels Aggregate Demand-the amount of all goods and services that will be purchased at all price levels

Business Cycles Expansion followed by contraction Phases 1.Expansion 2. Peak 3. Contraction 4. Trough

Recession Recession-prolonged economic contraction Falling GDP for 2 consecutive quarters (6 months) 6-18 months 6-10 % unemployment

Depression Over 6 months Severs unemployment

Stagflation Stagnant-unmoving A decline in real GDP combined with a rise in price level

What Keeps Business Cycles Moving? 1. Investment 2. Interest Rates and Credit 3. Consumer Expectations 4. External Shocks

Forecasting Business Cycles Performance Indicators 1. Stock Prices 2. Interest Rates 3. Manufacturers Orders of Goods 4. Monthly Updates

Economic Challenges Types of Unemployment Frictional Unemployment-occurs when people take time to find jobs Seasonal Unemployment-harvests, vacations, seasonal change Structural-skills don’t match the available jobs

Causes 5 causes Structural-skills don’t match the available jobs 1. New Technology 2. New Resources 3. Changes in Demand 4. Globalization Lack of Education

Inflation Inflation-a general increase in prices Consumer Price Index-measuring the price of a standard group of goods Inflation Rate-% rate of change in a price level over time Core Inflation Rate-excludes the effects of food and energy prices Market Basket-representative collection of goods & services

Calculating CPI-Base Period1982-194 That period =100 Each month the market basket items are checked against the Base Period Inflation Rate CPI for year a minus CPI for year B Divided by rate for year b times 100

Causes Quantity Theory-too much $ in the economy Demand-Pull Theory-demand exceeds supply..heavy demand for production factors to produce more drives the costs up Cost-Push Theory-producers raise prices