1. 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

2. 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

3. Quality Life in the 70’s & 90’s

4. 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

5. 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

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

7. 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

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

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

10. Depression
Over 6 months
Severs unemployment

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

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

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

14. 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

15. 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

16. 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

17. 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

18. 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