Coming Soon… Extended Bellringer

Stock Project Due today I have only received a few via email Please submit by midnight. You will lose 2 points every day late.

Extended Bellringer – Part I Identify the four types of unemployment Seasonal, Frictional, Structural, Cyclical Between what percentage rates is unemployment still “ok” for our economy? 4-6% Between what percentage rates is inflation still “ok” for our economy? 1-3% What three factors do economists look at to predict economic shifts? Unemployment, inflation, GDP Identify the three phases of the business cycle Recession, depression, recovery

Extended Bellringer – part II (Mod 9) In your notes, fill in the below chart: Structural Unemployment Frictional Unemployment Cyclical Unemployment

Extended Bellringer – part II (Mod 8) In your notes, fill in the below chart: Quantity theory of inflation Demand Pull theory of inflation Cost push theory of inflation

Review Q’s What is inflation? General increase in prices/decrease in purchase power Describe the quantity theory of inflation Too much money in economy Describe the cost-push theory of inflation Cost of production increases, higher prices for consumers Describe the demand-pull theory of inflation Demand exceeds supply creating a shortage so producers increase prices to reduce demand At what percent inflation is our economy deemed “unstable”? 5%

Agenda Extended Bellringer Video clip: GDP Notes: GDP

Video Clip - GDP http://www.youtube.com/watch?v=yUiU_xRPwMc

Gross Domestic Product (GDP) Essential Learning: Economic Indicators

What is an economic Indicator? Economic indicator: A gauge used to predict future trends in a Nation’s economy After the Great Depression and the Great Collapse of the stock market; economists searched for a way to determine if this would ever happen again What factors are involved in our economy that might give us insight into whether our economy is doing good or bad?

GDP Gross Domestic Product (GDP): dollar value of all final goods and services produced within a countries borders in a given year Dollar value: total selling prices of all goods/services produced in a country in one calendar year (Jan-Jan) Final Goods and services: products in the form sold to consumers (as opposed to intermediate goods) Produced within borders: Must be made within US. A US owned company in Japan does NOT count, but a Japanese company in Detroit DOES

Types of Goods Final goods: Goods that are in their final shape when sold to consumers. This IS calculated in GDP Intermediate goods: All the pieces that go into final goods (NOT counted in GDP) Durable goods: Last a long time (refrigerator, car) Nondurable goods: last a short time (food, sneakers)

Intermediate goods: cornbread example All of these are intermediate goods They don’t count in GDP because Then they would count multiple times This is final good:

Items economists consider for GDP: Consumer Consumption How much $ are we spending? What are we spending $ on? Business investments How many businesses have showed profit? How many have purchased new equipment/expanded? How many have hired more employees? Government investments Has the government made investments in domestic businesses? Bonds? Research? Exports Stuff we make within our country and sell to others Imports Stuff we buy from other countries

Calculating GDP The US Department of Commerce calculates based on National Income and Product Accounts (NIPA) Collect statistics on production, income, investment, savings, etc…. These statistics are then used to calculate the nations GDP

GDP GDP = Gross Domestic Product GDP: Total output produced within the country Economists use all the economic factors to determine our countries GDP. That GDP annually helps them predict if our economy is good or bad

GDP = C + Inv + G + (eX - iM) Calculating GDP Or: GDP = private consumption + gross investment + government spending + (exports - imports)

Practice Let’s try to categorize the following: Consumer spending, exports, imports, business investment, government investment Purchasing a TV A bottle of French Wine sold in NY US Air purchases Al Italia (Italian airline) A new Airforce 1 is commissioned Nike builds a new factory in Michigan Cell phone built in Florida but sold in Spain Louisville Slugger baseball bats sold in Japan Government subsidies increase 15% Home sales have increased 30% IPhones are produced exclusively in China

Let’s try to calculate GDP Consumer spending: 6 billion Government investments: 20 billion Business investments: 75 billion Exports: 10 billion Imports: 20 billion GDP = C + Inv + G + (eX - iM) GDP = 6B + 95B + 20B + (10B-20B) GDP=

Nominal GDP This is when GDP is calculated in current prices Use the current year’s prices on goods/services sold in/from the US to calculate the value of our total output

Problem…. Nominal GDP is ok short term, but prices generally increase over time right? What’s that called? Inflation! Nominal GDP calculations year after year do not give a realistic picture of our countries output in real dollars, because the value of our dollar changes every year OK for 1 year calculations, but multiple years not so much

Solution: Real GDP Real GDP: this is expressed in constant dollars. Using real GDP helps economists to be sure that our economy is growing because we are in fact producing more goods and services rather than rising because of prices

Nominal V. Real GDP Year 1 (Nominal) Year 2 (Nominal) Year 2 (Real) This year economy produces: 10 cars @ $15k each=$150,000 10 trucks @ $20k each = $200,000 This year output stays the same but prices rise (inflation) 10 cars @ 16k each = 160,000 10 trucks at $21k each= $370,000 Using Year 1 as base year: 10 cars at $15k each= $150,000 Nominal GDP = $350k Nominal GDP: $370k This makes people think our economy has grown, but really its just inflation Real GDP = $350k Economy output is the same as year one

Limitations Black market, underground economy

Textbook work Read pages 155-158 Answer questions 1-5 p. 158 Turn in for credit!