Bell Ringer. How do we know if the economy is healthy?

Transcription

1 Bell Ringer How do we know if the economy is healthy?

2 Objectives 1. Explain what gross domestic product (GDP) is and what it measures. 2. Compare the GDP of the United States with other countries.

3 Gross Domestic Product Gross domestic product (GDP) is the dollar value of all final goods and services produced within a country s borders in a given year. In short, GDP tracks the size of the economy. It is a measurement of a nation s economic output for a particular year. Current U.S. GDP (FY2016): $18.57 trillion Google s World Development Indicators

4 What is NOT included in GDP? Intermediate Goods (components of the final good) Steel, corn syrup, car parts, etc. Second-hand sales Purely financial transactions (stocks & bonds) Goods produced by U. S. firms overseas The Underground Economy Tips, royalties, under-the-table work The Black Market

5 Closure 1. Define Gross Domestic Product (GDP) in your own words. 2. What is one new or interesting thing that you learned today about the U.S. economy?

6 Key Terms gross domestic product: the dollar value of all final goods and services produced within a country s borders in a given year intermediate goods: products used in the production of final goods

7 Bell Ringer Based off what you ve heard from me, other people, or the news, do you think the U.S. economy is in a period of recovery or decline? How do you know this to be true? How do other people know this to be true?

8 Objectives 1. Identify the phases of a business cycle. 2. Analyze the impact of business cycles in U.S. history.

9 Business Cycle What is a business cycle? The business cycle is the upward and downward movements of the GDP. It refers to periods of expansion and contraction in the economy over several months or years.

10 Phases of a Business Cycle The business cycle consists of four phases: Expansion Peak Contraction Trough

11 Contractions There are three types of contractions: A recession is a long economic contraction (6 to 18 months) and is marked by a high unemployment rate. A depression is a prolonged and severe recession that is characterized by high unemployment and low economic output. Stagflation is a decline in real GDP combined with inflation.

12 Business Cycle Forecasting Why do business cycles happen? No single answer, but it has to do with imbalances between supply and demand. What affects business cycles? Negative external shocks (war) and positive external shocks (drop in the price of oil) Consumer confidence in the economy

13 U.S. Recessions Since WWII Cause: Oil embargo by Middle Eastern countries Cause: Inflation, rising gas prices Cause: First Iraq War; rising gas prices Cause: 9/11; Dot-Com bubble

14 The Great Recession Cause: Sub-prime mortgage crisis; high gas prices

15 Key Terms business cycle: a period of macroeconomic expansion followed by one of macroeconomic contraction expansion: a period of growth as measured by a rise in real GDP contraction: a period of economic decline marked by falling real GDP

16 Key Terms recession: a prolonged economic contraction depression: a recession that is especially long and severe stagflation: a decline in real GDP combined with a rise in the price level

17 Bell Ringer What do you know about the financial crisis of ( The Great Recession )? What is a recession? What were some of the consequences of the crisis?

18 Objectives Define the Great Recession. Explain the economic conditions that created the Great Recession, and some of its long-lasting consequences.

19 Video Preview Questions What is a subprime mortgage? What created the housing bubble? How did it burst? What were the consequences? What recovery measures were taken by the government?

20

21 What is a mortgage? How do people invest in mortgages? What is a subprime mortgage? How did the housing bubble burst? What were the consequences? What recovery measures were taken by the government? Who was to blame?

22 The 2008 Financial Crisis In early 2000s, mortgage companies and banks began to loan people money who could not afford to pay these loans back. When people began defaulting on their home loans, it triggered a domino effect that hit banks and investors hard starting in It was the worst worldwide financial crisis since the Great Depression and sent the U.S into a recession it is still trying to recover from. Often called The Great Recession

23 Bell Ringer What ideas/images/thoughts do you associate with unemployment? The current unemployment rate is 4.1 percent. How long do you think the average person remains unemployed? A: 26 weeks

24 Objectives Define unemployment and the labor force Describe how the government measures the economy s rate of unemployment Identify the problems in interpreting unemployment data

25 Identifying Unemployment Natural Rate of Unemployment (Long Term) The amount of unemployment that the economy normally experiences and does not go away on its own even in the long run. Cyclical Unemployment (Short Term) Associated with short-term ups and downs of the business cycle and refers to the year-to-year fluctuations in unemployment around its natural rate.

26 How Is Unemployment Measured? Unemployment is measured by the Bureau of Labor Statistics (BLS). It surveys 60,000 randomly selected households every month. The survey is called the Current Population Survey. Based on the answers to the survey questions, the BLS places each adult (over 16) years old into one of three categories: Employed Unemployed Not in the labor force

27 Employment Definitions Employed: A person is considered employed if he or she has spent some of the previous week working at a paid job. Unemployed: A person is unemployed if he or she is on temporary layoff, is looking for a job, or is waiting for the start date of a new job. Labor Force: the total number of available workers; the sum of the employed and the unemployed. Not in the Labor Force: A person who fits neither of these categories, such as a full-time student, homemaker, disabled person, retiree, etc., is not in the labor force.

28 Issues in Measuring Unemployment Discouraged workers, people who would like to work but have given up looking for jobs after an unsuccessful search, don t show up in unemployment statistics. Underemployed workers are counted as fully employed. Some people falsely claim to be unemployed in order to receive financial assistance, even though they aren t looking for work.