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

2. 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

3. 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”

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

5. 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:
Substitution Bias
New goods
Quality changes
Base year always 100
Use to calculate inflation rates
COLA = cost of living adjustment

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