Alternating increases/decreases in economic activity
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Peak
Temporary maximum level of economic growth
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Recession
After the peak. Consistent decline in economic growth
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Trough
After the recession. Temporary lowest point of economic growth.
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Expansion
After the trough. There is a consistent increase in economic growth.
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What economic trend do we expect in the long run?
Economic growth
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What are three things that the Bureau of Economic Analysis does?
Uses the GDP to assesses the health of the economy, track long run course, and formulate policy
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What is the GDP?
The market value of all final foods and services produced in the borders of one country.
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What do we exclude from the GDP?
Intermediate goods, public transfer payments, private transfer payments, second-hand sales, and stock market transactions
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What are intermediate goods?
Goods producers buy to build their products
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What are public transfer payments?
Payments from the government to the people such as disability checks
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What are private transfer payments?
Gifts like gift cards from a friend
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What are second-hand sales?
Donations
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What is the Gross National Product (GNP)
Market value of all final goods and services that depends on who is making the product
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What is the expenditures approach?
Where we count the sum of money spent buying the final goods. (Consumption + Investment + Government purchases + net exports)
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What is the income approach?
Where we count the income derived from production. (Wages + Rents + Interest + Profits + statistical adjustments)
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What are personal consumption expenditures?
They’re made by private households. Consist of durable goods, nondurable goods, consumer expenditures for services, and domestic and foreign produced goods.
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What are private domestic investments?
Machinery, equipment, tools, constructions, changes in inventories, and depreciation.
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What is government spending?
Expenditures for goods, services, publicly owned capital, and transfer payments
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What are net exports?
Exports - imports
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Concerning the income approach, what do we need to subtract from the national income to get the GDP?
Net foreign factor income: income earned by Americans working overseas
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What is nominal GDP?
Based on pries in the current year when output was produced, but considered inaccurate since it could mistake growth when compared year to year.
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What is real GDP?
Uses a year of production as a baseline to compare other years of production. Considered accurate as it eliminates price fluctuation that occurs in nominal GDP.
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How to calculate Real GDP?
Nominal GDP/GDP Price Index** 100 OR Units of Ouput ** Base Year’s Price
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How to calculate GDP Price Index in a Given Year
Price of Market basket in specific year/price of market basket in base year \* 100
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What is the GDP Price Index/Price Deflator?
It shows us how prices have been fluctuating around the base year
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