1. UNIT 4 Measuring the economy
GDP, Unemployment, and Inflation
Notes
QOD: What do you think it means when an economy is “sick” and when it is “healthy?”

2. 1st Economic Indicator - GDP
Gross Domestic Product
Market value of all final goods and services produced within a country during a given period of time.
Excluded – intermediate goods, used and illegal goods

3. C (household consumption) + I (Business investment) + G (government purchases) + NX net exports (exports – imports) = GDP
Calculating GDP

4. Practice Write C, I, G, EX, IM, or not included
The U.S. Gov’t spends $5 billion to improve highways.
Todd buys a new washing machine for his home.
Judy buys a new computer for her engineering firm.
Pfizer sells pharmaceuticals to a company in Germany.
Bruce buys a Honda that was made in Japan.
General Electric spends $10 million to build a new factory in New York.
Lisa buys a 2009 Nissan Murano.
The U.S. Gov’t pays your grandfather $500 as part of his Social Security benefits.
Melissa pays her hair stylist $50 for a haircut.
Widgets, Inc. buys new vans to update its aging delivery vehicles.
Practice

5. MEASURING GDP Nominal – measures in current dollars
What is the total amount produced and sold this year compared to last year?
Real - measures in constant dollars (takes into account change in price – inflation)
Have we really produced more or did prices go up?

6. How do we know if GDP has gone up, or if prices have gone up
How do we know if GDP has gone up, or if prices have gone up? =compare real and nominal GDP Example: 2012: bag of chips = 4 for $1 100 students buy = $ : bag of chips = 4 for $2 100 students buy = $200
Application

7. Measuring GDP continued…
Per capita GDP – GDP/population “per person”
One of the measures for a societies standard of living
Quality of life – life expectancy, technological innovations, advancements in medicine, etc.

8. Duck Tales Inflation Lesson – YouTube
What is the moral of the cartoon?

9. Moral of the cartoon
More money printed and in circulation decreases the value of it, causing prices to go up.

10. 2nd Economic Indicator - Inflation rate
Percentage increase in the average price level of goods and services from one month or year to the next.
Creeping (slightly increasing) inflation is a good thing!
Shows people have money and are spending it!
Cartoon shows hyperinflation
Filling for a cavity = $40,000

11. Measuring inflation
Consumer price index a.k.a. cost-of- living measure
Measures change in prices of “market basket” of consumer goods and services
Largest expense = Housing 42% (rent or mortgage, property taxes, heat, electricity, furniture)
Source – Bureau of Labor Statistics

12. Nominal vs. real Cost-of-living Wages
Do things cost more now than they did 50 years ago?
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13. Answer Many times – NO Why? Adjust for inflation
Ex – pair of shoes $4, wages $2/hr.
2008 – $40, wages $20/hr.

14. Reasons for inflation Increase in money supply
Demand-pull – increase in overall demand
Cost-push – rising costs of factors of production EX. pay raises

15. Economic cost of inflation
Higher interest rates (fee for loaning $)
Loss of purchasing power
People on a fixed income hurt the most
Consumers will save more and spend less!
Loss of economic efficiency

16. 3rd Indicator - Unemployment
Unemployment rate - % of the labor force that is seeking work.
Understated because it does not count discouraged workers who have given up
High unemployment rate = unhealthy economy

17. Has the current unemployment rate decreased or increased? Why?
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