GROSS DOMESTIC PRODUCT

Transcription

1 GROSS DOMESTIC PRODUCT

2 1. The three types of unemployment are,, and. 2. If Frank just moved to town and is looking for a job, he would be considered part of unemployment. 3. If Lisa was laid off from her job due to an increase in the cost of steel, she would be considered part of unemployment. 4. If Mona was fired as a clerk because the company is switching to automated check-out machines, she would be considered part of unemployment. 5. The Movement in 2011 was in response to increasing income inequality 6. The wealthiest 1% of the population own of the wealth of the country. 7. The middle class is important because. 8. The three ways that the U.S. has responded to stagnant wages are,, and.

3 Remember how we are looking at this unit Challenges Unemployment Income Distribution Measures GDP Inflation & CPI The Business Cycle Intervention Monetary Policy Fiscal Policy

4 GDP GROSS DOMESTIC PRODUCT The total value of all final goods and services produced annually in a country Usually this is calculated by adding up total expenditures for final goods and services The most common measure of an economy s health, growth, productivity

5 HOW TO CALCULATE GDP Suppose a tiny country only produced 3 goods: Cars: $20,000 each Computers: $2,000 each Books: $200 each To find the GDP, we would multiply the price by the amount of each good produced Cars: 10 sold x $20,000 =$200,000 Computers: 5 sold x $2,000= $10,000 Books: 7 sold x $200 = $1400 Total GDP = $211,400

6 Only final goods and services are counted Final Good: a good sold to its final user Ex: car, computer, watch, book, hamburger Intermediate Good: used in the production of another good or service Steel for a car, ink for a pen, thread for a shirt Differentiating between these two goods is important, to avoid double-counting The steel is already included in the cost of the car, so counting it again by itself would be double-counting

7 Intermediate Goods Final Good + $6 in Labor $60 Land $10 $20 $40 Labor + $10 in Labor + $3 in Dye + $9 in Labor

8 WHAT GDP DOESN T INCLUDE ITEM EXAMPLE 1. Illegal Goods & Services A person buying illegal drugs 2. Non-market Goods & Services Mom doing the house chores 3. Used Goods & Services Reno buying a pre-owned car or electronic item 4. Stocks & Bonds Flad buying 100 shares of stock in a company 5. Government Transfers Eustace getting his monthly Social Security payment If GDP measures how healthy an economy is, why aren t non-market items included? Things like education, pollution, health, happiness, etc.? Look

9 GROSS DOMESTIC PRODUCT & GROSS NATIONAL PRODUCT GDP Total value of goods and services produced within the borders of the US (even if produced by noncitizens) GNP Total value of goods and services produced by US citizens (even if they reside in other countries)

10 HOW DO ECONOMISTS MEASURE ALL THE GOODS AND SERVICES? They break the economy into 4 sectors and label the spending for each sector differently Household Sector Business Sector Government Sector Foreign Sector Consumption (C) Investment (I) Government Purchases (G) Exports & Imports (EX & IM) GDP = C + I + G + EX - IM Stop & Think = Why are imports subtracted from this equation?

11 1. Consumer Spending house, car, TV, restaurant meal, ipod Largest part of GDP Examples 2. Business Spending ( Investment ) copy machine, tractor, electric saw, frosting dispenser 3. Government Purchases Army tanks, translators, hospital beds 4. Foreign Spending A person in Sweden buys a U.S. made sweater, Thai business group hires a U.S. based advertising firm

12 GDP BY COUNTRY 2014 COUNTRY GDP 1. United States 17.5 trillion 2. China 10.3 trillion 3. Japan 4.6 trillion 4. Germany 3.8 trillion 5. United Kingdom 2.9 trillion 6. France 2.8 trillion 7. Brazil 2.3 trillion 8. Italy 2.1 trillion 9. India 2.0 trillion 10. Russia 1.8 trillion

13 REAL VS. NOMINAL GDP If GDP increased from $100 million in 2011 to $125 million in 2012, how would you know if the increase was due to increased output or simply the increase of prices? Real GDP: GDP that has been adjusted for price changes, measured in constant prices Nominal GDP: GDP that is measured without these adjustments (still GDP, but not as accurate)

14 GDP Per Capita ANOTHER TYPE OF GDP GDP divided by the population the average GDP per person Particularly useful for measuring labor productivity between two countries Ex: Country A = GDP is $10 million and population is 50,000, the GDP per capita is $200.

15 To compute Real GDP, you must establish a base year a point of reference for comparison YEAR PRICE OF JEANS QUAN -TITY SOLD NOMINAL GDP Price in X Quantity in Current Year Current Year REAL GDP Price in X Quantity in 1987 Current Year 1987 $ $20 X 300 = $6, $ $50 X 500 = $25,000 $20 X 500 = $10, $ $60 X 550 = $33,000 $20 X 550 = $11, $ $70 X 480 = $33,600 $20 X 480 = $ $ $80 X 600 = $48,000 $20 X 600 = $12,000 Stop & Talk = After looking at this chart, why would it be beneficial to use Real GDP instead of Nominal GDP?