Chapter 11 & 12

Gross Domestic Product, Business Cycle, and Unemployment

Expenditure Approach

leading approach; totals annual expenditures on four categories of final goods:
1) spending by households, or consumption (c)
2) business good and services, or investment (i)
3) government goods and services (g)
4) total exports - total imports, or net export (x)

Income Approach

calculates GDP by adding up all the incomes in the country

GDP Per Capita

identifies the quantity of goods and services attributed and made available for each member of society
-real gdp per person in the population

Frictional Unemployment

the unemployment which exists in any economy due to people being in the process of moving from one job to another
-the regular hiring and firing of workers

Structural Unemployment

unemployment caused by a mismatch between jobs and skills, or other long-term changes in the economy
-technology or international competition changes workers needs
-ex: telephone operators lost, influencers gained

Cyclical Unemployment

loss/gain of jobs due to swing of business cycle
-not a part of the "natural rate of unemployment"

Nominal GDP

the dollar value of all final goods and services produces within a country's borders in one year, expressed in current dollar value (UNADJUSTED for inflation)

Real GDP

the dollar value of all final goods and services produces within a country's borders in one year, expressed in current dollar value (ADJUSTED for inflation)

GNP

the value of goods and services produced overseas in foreign nations by domestic firms

Imports

goods which add to the stock of material resources of a country by entering its economic territory

Exports

movable goods produced within the boundaries of one country, which are traded with another country

Expansion

GDP is growing, consumers are shopping, employment is improving and prices are rising

Peak

high point where gap stops growing, prices are at they highest and unemployed workers are hard to find

Contraction

GDP is shrinking, consumers are not shopping, prices are falling and workers are losing jobs

Trough

demand, production, and unemployment are at their lowest point

Leading Indicators

measure of economic performance that usually changes six to nine months before real GDP changes: Stock market, interest rates and new home sales

Coincident Indicators

measure of economic performance that usually changed with Real GDP: employment, sales volume and personal income

Lagging Indicators

measure of economic performance that usually changes after real GDP: confirms a cycle has ended: ratio of consumer credit to personal income

Consumer Price Index (CPI)

a measure of the average change in prices over time in a fixed market basket of goods and services

Depression

a steep and sustained drop in economic activity featuring high unemployment and negative GDP growth

Recession

a significant, widespread, and prolonged downturn in economic activity

Double Counting

The mistake of including both the value or intermediate products and the value of final products in calculating gross domestic product

US Bureau of Labor Statistics

measures labor market activity, working conditions, price changes, and productivity in the U.S. economy to support public and private decision making

Final Goods

-goods which used either for consumption or for investment
-they are ready for use in the sense that no value has to be added
-they have crossed the production boundary
-ex: milk purchased for household consumption

Intermediate Goods

-a product used to produce a final good or finished product
-goods that are used by businesses for producing goods or services
-known as producer goods

Underground Economy

there is much economic activity which, although income in generated, is never reported to the government: Black market transactions and under the table wages: Drug dealing

Quality of Life

countries with high GDP's have high living standards: GDP does not show how goods and services are distributed

How to Calculate Unemployment Rate:

UR= # of unemployed/labor force

What is not included in GDP?

-illegal goods
-unpaid work
-used goods
-non market activities