GDP, Unemployment, Inflation

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Unit 3 Macroeconomics.

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Presentation transcript:

GDP, Unemployment, Inflation Unit-2 Macro Cram GDP, Unemployment, Inflation

GDP = C + I + G + (X-M) Measuring Economic Growth: Calculating GDP: Business Investment, Consumer/Business Construction, & Change in Inventories. (new houses count as investment!) GDP = C + I + G + (X-M) What Counts? Only NEW & FINAL goods Domestic Products (made in USA) What does NOT Count? Used goods International products Financial transactions Non-market transactions Gov’t Transfer Payments (i.e. welfare, social security, unemployment) GDP does not measure: mix of goods, quality of products, quality of life, leisure time

4-Types of Unemployment Structural Skills do not match demand for labor Cyclical too low a level of GDP (recession) Frictional Temporarily between Jobs Seasonal Based on time of year Natural Rate of Employment (also called full employment) About 4.5% in USA Allows for some Frictional & Structural Natural Rate is where: Cyclical unemployment is zero Seasonal “factored out”

Business Cycle ? PEAK 2000 2006 Dot.com Collapse TROUGH 2000 1990’s Technology Boom 2001 2006 Housing Bubble Dot.com Collapse 2008-09 2016 Great Recession ?

Measuring Inflation GDP deflator – uses price of all goods/services included in GDP Very Broad index but only has domestically produced goods CPI index – uses prices of a consumer market basket of goods & services Very narrow index but has international goods What should be in basket? Inflation Index: 1990 100 2000 115 Substitution Bias New goods Quality changes Base year always 100 Use to calculate inflation rates COLA = cost of living adjustment

Practice Test Unit #2 Questions #1 - #20 .