GDP

Unemployment

• Joblessness: People without work but actively seeking emplyment

• Common during recession

• Causes: Recession, mismatch of skills, high wages

• Consequences: Poverty, lower demand, crime, poor health

• Classical Unemployment

• Cyclical Unemployment

• Structural Unemployment

• Hidden & Long-term Unemployment

Types of Unemployment

Classical Unemployment

• Real wages above market-clearing level

• More job seekers than vacancies

Cyclical Unemployment

• Due to low aggregate demand

• Lower production — fewer jobs

• Eg: Job Cuts, Retrenchment

Structural Unemployment

• Skills mismatch

• Lasts longer than frictional unemployment

Hidden & Long-term Unemployment

• Hidden: People not counted in statistics (discouraged workers)

• Long-term: Lasting over one year

Frictional Unemployment

• Transition between jobs

• Natural and temporary

• eg: People quitting job to find new on

Poverty

• Poverty reduction is a key economic goal

• Creates social and economic costs

• Lost output (opportunity cost)

• Higher welfare costs

• Unemployment, crime, poor health

Costs of Poverty

1. Absolute Poverty

2. Relative Poverty

Types of Poverty

Absolute Poverty

• lacking basic needs: food, water, shelter. clothing

• Measured as living on less than $1.25/day

Relative Poverty

• Poverty defined in comparison to others

• Ex: what is poor in New York is not poor in Mumbai

• Linked to deprivation (eg. no clean water or education)

Households and Firms

• Suppy Factors of production _______

• Provide goods and services ____

Savings & Investment

• Withdrawal from circular flow

• Injection (purchase of capital goods)

GDP

• total value of goods & services produced within a country

• Indicator of economic health

• total monetary or market value of all finished goods and services produced within a country’s borders in a specific time period

C : Consumption

G : Government Spending

I : Investment

X-M : Net Exportds

Components of GDP

Consumption

• the money people spend on goods and services

• eg: when buying groceries, paying for haircut or going to the movies, that’s consumption

Government Spending

• this is the money the government spends to provide services and build things

• ex: salaries of public teachers, building roads, running hospitals, and maintaining the military

Investment

• this is the money businesses spend to grow and make more in the future

• ex: a company buying new machines, building a factory, or a family buying a new house

Net Exports

• this is the value of what we sell to other countries (Exports = X) minus what we buy from other countries (imports = m).

• Ex: if the philippines sells bananas abroad, that’s an export If we buy iPhones from the US, that’s an import)

GNP (Gross National Product

• values of goods & services by citizens of a country (domestic + abroad)

• Includes net income from overseas