GROSS DOMESTIC PRODUCT 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 ________. Remember how we are looking at this unit… Challenges Measures Intervention Unemployment GDP Monetary Policy Income Distribution Inflation & CPI Fiscal Policy The Business Cycle GROSS DOMESTIC PRODUCT GDP 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 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 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 Intermediate Goods Final Good + $6 in Labor $60 Land $20 $10 $40 + $10 in Labor Labor + $9 in Labor + $3 in Dye 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 GROSS DOMESTIC PRODUCT & GROSS NATIONAL PRODUCT GDP GNP Total value of goods and Total value of goods and services produced within services produced by US the borders of the US citizens (even if produced by non- (even if they reside in other citizens) countries) 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 Consumption (C) Business Sector Investment (I) Government Sector Government Purchases (G) Foreign Sector Exports & Imports (EX & IM) GDP = C + I + G + EX - IM Stop & Why are imports subtracted = Think from this equation? Examples 1. Consumer Spending 2. Business Spending house, car, TV, restaurant (“Investment”) meal, iPod copy machine, tractor, electric saw, frosting dispenser Largest part of GDP 3. Government Purchases 4. Foreign Spending Army tanks, translators, A person in Sweden buys a hospital beds U.S. made sweater, Thai business group hires a U.S. based advertising firm GDP BY COUNTRY 2017 COUNTRY GDP 1. United States 17.5 trillion 2. China 9.5 trillion 3. Japan 6 trillion 4. Germany 3.8 trillion 5. United Kingdom 2.9 trillion 6. France 2.8 trillion 7. Brazil 2.5 trillion 8. India 2.5 trillion 9. Italy 2.0 trillion 10. Canada 1.8 trillion 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) ANOTHER TYPE OF GDP GDP Per Capita 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. To compute Real GDP, you must establish a base year – a point of reference for comparison PRICE QUAN NOMINAL GDP REAL GDP YEAR OF -TITY Price in X Quantity in Price in X Quantity in JEANS SOLD Current Year Current Year 1987 Current Year 1987 $20 300 $20 X 300 = $6,000 ---------- 2000 $50 500 $50 X 500 = $25,000 $20 X 500 = $10,000 2001 $60 550 $60 X 550 = $33,000 $20 X 550 = $11,000 2002 $70 480 $70 X 480 = $33,600 $20 X 480 = $9600 2003 $80 600 $80 X 600 = $48,000 $20 X 600 = $12,000 After looking at this chart, why Stop & = would it be beneficial to use Real Talk GDP instead of Nominal GDP? .