Macroeconomics Unit 2 - Economic Indicators

2.1-2.7

Economists measure the health of the economy by looking at key economic indicators like gross domestic product (GDP), the (1)____________ rate and the (2)_____________ price index, which measures inflation.

(1) unemployment rate; (2) Consumer price index

The circular flow models show how households, businessesm and the __________ interact.

(1) Government

Gross domestic product (GDP) is the dollar value of all (1)_______ goods and services produced within a country in one (2)_______

(1) final

(2) year

3 Types of Unemployment

Frictional, Structural, Cyclical

The economy is at full emoployment when there is no _______ unemployment

Cyclical

(1) _______ GDP is adjusted for inflation and expressed in constant, or unchanging dollars

Real

_______ GDP is not adjusted for inflation.

Nominal

How does the expenditures approach measure GDP?

It adds up all of the spending on final goods and services produced in a year

GDP

C + I + G + (X-M)

How does the value-added approach measure the GDP?

The value at each stage of production is added to provide revenue

How does the income approach measure GDP

It adds up all of the income that resulted from selling all final goods and services

National Income

W + R + I + P (wages, rent, interest, (capital), profits)

Businesses sell goods and services to households in the (1) _______ market and households sell resources to (2) _______ in the resource market.

(1) product

(2) businesses

Public goods and services are provided by the (1) _______ and are funded by (2) _______

(1) government

(2) taxes

Consumer Spending Examples

Durable goods: Cars, refrigerators

Non-durable goods: Food

Services: Dental work

Investment Spending Examples

Businesses buying capital

Government Spending Examples

Military Services

3 Types of Transactions NOT included in GDP

1. Intermediate Goods: Tires going onto a car

2. Non-production Transactions: Stocks, bonds, real estate

3. Non-Market Activities: Illegal drugs, unpaid work, black markets

True/False) Services are not counted in the calculation of GDP because nothing new was produced

False - Goods/Services are counted

True/False) Intermediate goods are used in the production process to produce final goods

True

True/False) A new paint job on a used car is not counted in GDP

False - It’s a new service

True/False) Investment spending is spending on financial assets like stocks and bonds

False

True/False) Subsidies to businesses are examples of transfer payments

True

True/False) Transfer payments are not counted in the calculation of GDP

True

True/False) The equation for net exports is imports - exports

True

True/False) New housing construction is considered investment and is counted in GDP

TrueTrue

True/False Canada’s GDP includes goods produced in other countries by Canadian companies

False - only counts goods produced domestically

True/False) Inventories, goods that have been produced by a business but have not yet been sold, are counted in GDP as an investment

True

Frictional Unemployment

temporarily unemployed/between jobs or seasonal

Structural Unemployment

Changes in the labor force makes some skills/jobs obsolete

• jobs will NEVER come back

Cyclical Unemployment

Results from economic down turns (recession)

• goods/services demand falls= labor falls

Labor Force Equation

Employed + Unemployed

Unemployed

Without a job, but actively seeking work

Unemployment Rate

% of people in labor force who want a job but are not working

Unemployment Rate Equation

(# of unemployment / # in labor force) x 100

Labor Force Participation Rate Equation

(Labor Force / Population 16 years or older) x 100

Natural Rate of Unemployment (NRU)

Frictional Unemployment + Structural Unemployment

Why does “full employment” does not mean 0%?

The economy is at full employment is when it has some structural and frictional unemployment and no cyclical

CPI

(Cost of Market Basket / Cost of Market Basket in Base Year) x 100