1. Economic Performance and Growth

2. The US Economy
Economy- the structure of economic activity in a locality, a region, a country, a group of countries or the world
Gross Domestic Product (GDP)- measures the market value of all final goods and services produced in a country in a given period, usually one year
National income accounts (collect data from US)
No Double Counting

4. Calculating GDP GDP based on expenditures approach C+I+G+(X-iM)=GDP
Consumption
Investment
Government Purchases
Net Exports
GDP based on income approach (aggregates income from production)

5. What GDP Misses
Household Production (childcare, meal prep, home repair)
Underground Economy (illegal, work off book)
Leisure, Quality, and variety (standard of living)
Depreciation- capital stock used up or obsolete
Does not reflect all costs (environment)

6. Adjust GDP for Price Changes
Nominal GDP Versus Real GDP (adjust for inflation)
Price Indexes (items price each year)
Consumer Price Index- change over time in the cost of buying goods and services

7. US Economic Fluctuations
Business cycle- reflects rise and fall of economic activity relative to long-run growth trend of the economy
Recessions and Depression- reduction in national production over several quarters
Long term growth
Increase amount and quality of resources
Better technology
Improvement in rules of the game (property rights, patent law, legal system)

9. US Economic Fluctuations
Different Impacts on States
Regional growth
Seasonal
Business Cycles Around the globe
World can be hit by recession

10. Economic Indicators Leading Indicators Coincident Indicators
Business slows
Stock market turns down
Coincident Indicators
Total employment, personal income, industrial production
Lagging Indicators
Interest rate, loans outstanding, average duration of employment

11. Aggregate Demand and Supply
Aggregate Output- composite measure of all final goods and services produced in an economy in a given period
Price level- reflects prices of all goods and services in an economy in a year

12. Productivity PPF and Growth
Standard of living- economy’s level of prosperity as measured by the value of goods and services produced, on average, per person
Labor Productivity
Human and Physical Capital
Capital Deepening- increase in capital per worker
Rules of the Game

13. Standard of Living Industrial Economies (Developed)
Developing economies
Education and economic development
High literacy better development G7

14. Research and Development
Basic Research- search for knowledge without knowing how it will be used
Applied Research- Answer particular question or apply to specific product
R&D Comparisons Across Countries

15. Technological Change and Employment Levels
Technological Change and labor productivity
Increase production and employment (assembly line)
Could cost jobs (replaced by machine)
Technological Change and Employment Levels
Workers 2050% more productive than in 1870
Creates high standard of living (more leisure time)
Jobs lost in short run

16. Industrial Policy Government involvement Identifying industry Clusters
Industrial policy- government can help nurture technology and industry of the future
Identifying industry Clusters
Cluster- Companies in same industry locate to same place (silicon valley, Hollywood)
Pitfalls of Trying to Pick Technological Winners
Government not most efficient with resources
Fear of government helping based on connections