Economic Indicators GDP, Unemployment, Inflation, Standard of Living

I. GDP Pt. 1 A.Gross Domestic Product: The total value of the goods and services produced in a country in a given year. 1)One major way nations measure economic performance (indicator). 2)GDP only counts final goods. a)In order to avoid double counting: GDP doesn’t consider intermediate goods. b)Intermediate goods: goods and services used as inputs for final goods.

GDP practice. So, Add up how much is added to the GDP from one car… $500 Tires $4000 Engine $5000 Steel $300 Glass $20,000 Car …………………….Total added to GDP = ?????

I. GDP cont. Pt. 3 B.Final Good/End Use 1)Separate components of cars are not counted separately when a car is sold 2)Individual tires sold on the car are not counted separately. They are counted as part of the total market price of the car 3)Tires sold at a tire store would be counted as that is the end use or a final good NOT an intermediate good.

I. GDP cont. Pt. 4 C.Calculating GDP 1)Consumer Spending: all goods and services purchased by consumers. Examples:??? 2)Investment: Resources used to create goods and services. Examples:??? 3)Government Spending: money government spends on new production Examples:???

I. GDP cont. Pt. 5 4.Exports Minus Imports A.Net exports (X): Value of goods and services sold to other countries B.Net imports (M): Value of other goods/services purchased here but manufactured somewhere else C.We subtract imports because they are already included in C, I, and G

I. GDP cont. pt 6 D.Equation: GDP= C + I + G + (X-M) C = consumer spending I = investment G = Government spending X = exports M = imports

I. GDP practice pt. 2 Julio is 25 years old and is a waiter. He makes 10,000 BD a year. He sold 45,000 BD in food at the restaurant. He bought a house for 10,000 BD. Spent 5,200 on food, clothing, gas, and all other needs for the year. He also bought a used car for 1,000 BD. How much did he contribute to the GDP of Bahrain?

GDP practice pt. 3 The king builds 100 new roads for 325,000 BD. The cost of schools for the year is 1,000,000 BD. Taxes collected was 5,000,000 BD. Public transportation is 22,000 BD and 500,000 BD was spent on Social Security. How much did the government add to GDP?

I. GDP E.What is missing? 1.Doesn’t take into account non-market activities - i.e. homemakers 2.Doesn’t take into account illegal activities - i.e. drugs, trafficking of stolen goods. 3.Doesn’t account for negative externalities - i.e pollution 4.Doesn’t account for “quality of life” stuff - i.e. number of hours worked in a week.

II. Inflation/Deflation A.Inflation: the rise in prices over time for goods and services. McDonald’s Burgers In 1955:.15 In 2013:.99 McDonald’s Burgers In 1955:.15 In 2013:.99

II. Inflation/Deflation B.Good or Bad? 1)Rapid inflation (quick rise in prices) is not a good thing. 2)Slow rise in prices is the sign of a good growing economy. 3)Wages should rise with the rise of prices. 4)Deflation: Lowering of prices over time is actually a much worse indicator.

II. Inflation/Deflation C.Inflation can be rapid during a recession if not controlled by the government by raising interest rates. D.Deflation may occur during a depression.

II. Inflation/Deflation

III. Standard of Living A.Standard of living: The level of material comfort as measured by the goods and services that are available. 1. Human Development Index: measure of life expectancy, literacy, education, standards of living, and quality of life. 2. Bahrain: #48, Norway #1 Australia #2 U.S. #3

IV. Unemployment A. Definition: The percentage of people able to work but unable to find jobs. B. Unemployment rises during recessions and depressions. C.Once unemployment starts to lower, the recovery cycle starts.

V. Government Spending A.budget deficit: government spends more on programs than it collects in taxes B.national debt: The total amount of money a government owes C.budget surplus: A situation in which a government’s revenue exceeds its expenditures during a one-year period

Checking for Understanding Quiz When the prices of items goes up. Inflation or Deflation? What is the most common economic indicator? What is it called when the government has extra money? What does GDP stand for?