Economic Indicators short list CPI GNP GDP

Transcription

1 Economic Indicators short list CPI GNP GDP

2 Consumer Price Index What is it Monthly index of consumer prices (COL)

3 Market basket of 300 particular goods and services everything from new cars to milk Bureau of Labor and Stats monitor these costs by calling some 21,000 retail stores across the country

4 What does CPI tell us It is a major indicator of inflation or deflation When P goes up CPI goes up, when P goes down CPI goes down This impacts COL salary adjustments yehhh however this also means a potential for inflation, which eats up your raise and sometimes more

5 Issues with CPI Does not account for coupon clippers or shop when things are on sale. What if when you BLS guy/girl call on a set of tires you miss the two for one special from last week

6 $1300 LCD $3500 LED 1.2 inches Does not account for new and improved stuff Price increase does not necessarily mean inflation product could have new improvements or enhancements

7 Does not account for trends and/or fads VS More wine and less beer (red wine good for heart) Changes in buying patters affect CPI 1) patterns shift from basket of 300 2) Prices themselves might be impacted by changes in buying habits ie demand increase in wine means the price will go up, yet CPI will only see P increase not increase in demand

8 up next GNP Products made in US by Chinese based business Workers in Europe Doesn t count US Manufacturer in Australia Total output produced by US land -Labor -Capital -Talent REGARDLESS of whether these things are actually in the US or not. GNP accounts then for US citizens working in France or corporations manufacturing in Guatemala.

9 What if I make the steel for the car but don t make the car do we get credit no Product is factored into GNP only as final goods or services this way things don t get double or triple counted. Example cotton shirt at Buffalo Bobs Shirt is puff of cotton in farmers field Harvested with other puffs and sold to wholesaler Wholesaler bundles a bunch of cotton and sells it to a textile mill Mills turns it into cloth and sells to garment manufacturer Sells it to Buffalo Bobs

10 .so.. GNP only includes final sale of shirt, otherwise value of shirt is overstated Only final shirt not steps along the way.

11 Three ways to look at GNP Product approach GNP calculated by using the market value of all G and S over a period of time Expenditure approach- GNP calculated as the total spending Income approach-- GNP calculated by adding up all the revenues received by the producers of all the final goods.

12 Finally GDP Total output produced within the boundaries of the US whether or not it is produced in by US labor, capital, and talent. U.S. made cars of Toyota, which itself is a foreign company counts!

13 Why is GDP useful 2 reasons It can gauge the health of the current economy It also allows us to compare GDP trends of the past with current GDP and make predictions about the future of the economy.

14 GDP--dismantled Consumption expenditures final goods Gov t purchases--- dahhh purchases made by the Gov t can account for as much as 20% of GDP Defense, education and roads

15 Continued Gross private domestic investments purchases made by businesses..ie offices, factories, inventory, computers, car, etc. Net exports

16 What is going on with our economy every business cycle has 4 parts Peak GDP is highest Contraction production drops off and unemployment grows Trough lowest point Expansion rise in GDP, unemployment decreasing, people are spending, etc.think springtime

17 When it is good watch out When it is bad get ready Recession---what is it? Pt. In a contraction when GDP declines in 2 consecutive quarters Depression harder to define most recent economic downturn was not---endless downturn How do you know when we are in a recession your neighbor loses their job How do you know when we are in a depression you lose your job