GDP
- Gross Domestic Product; the total value of all final goods and services produces within a countries borders within a given year
- Included:
- final goods and services
- income earned
- interest payments on corporate bonds
- current production of final goods/services
- unsold output (business inventories)
- Excluded:
- intermediate goods
- transfer payments (public/private)
- Ex: scholarship, SS
- purchases of stocks and bonds
- used/secondhand sales
- non-market transactions
§ illegal drugs, prostitution
§ baby sitting
§ own housework/repairs
§ growing own products for person consumption
GNP
- Gross National Product; total value of all final goods and services produces by US within a given year
Calculations
- GDP:
- Expenditure: C + Ig + G + Xn
- C- personal consumption
- Ig- Gross private domestic investment
- G- government spending
- Xn- Net Exports
- Income: W + R + I + P + Statistical Adjustments
- F.O.P
- W- wages/salaries/compensation of employees
- R- rent/rental income
- I- interest income
- P- Payments/ Proprietors income/profit
- Budget
- Deficit - Total amount that the govt. borrows within a year (total govt. spending exceed tax and fee revenue)
- transfer payments + govt. purchases of goods/services - Gov. tax and fee collection
- Neg = Surplus Pos = deficit
- Trade
- Exports - imports
- National Income
- Method 1:
- Compensation of employees + proprietors income + interests income + rental income + corporate income
- Method 2:
- GDP - Indirect business taxes - depreciation - net foreign factor
- Disposable Personal Income
- national income - Household taxes + Govt. Transfer Payments
- Net Domestic Product
- GDP - depreciation (consumption of fixed income)
- Net National Product
- GNP – depreciation (consumption of fixed income)
- GNP
- GDP + Net Foreign Factor Payment
- Nominal GDP (Inflation)
- The value of output produces in current prices (can increase year to year if either output or price increase
- P X Q
- · Real GDP (Economic Growth)
o Value of output produced in constant or base year prices
o can only increase if output increases
o Original Price X Q
o adjusted for inflation
- · Deflator- NGDP/RGDP * 100
o Base Yr: Def =100
o After Base Yr: Def>100
o Before Base Yr: Def<100
- · Consumer Price Index
o measures the cost of the market basket of goods of a typical
urban American family
o (Cost of market basket in a given year)/(cost of market
basket in a base year) * 100
- · Inflation - general rise of the price level
- · Deflation - fall of the price level
- · Rate of Inflation
o (CPIx - CPIbase)/CPIbase * 100
- · Types of Inflation
o Cost-push inflation - higher production costs which increase
prices, results in a supply shock
o Demand-pull inflation - too much money chasing too few
goods; shortage driving up prices, overheated economy w/ excessive spending w/
same amount of goods
- Political Panic - depression/ recession
- Inflation Hurts
- lenders- loan money at a fixed rate
- people with a fixed income
- fixed wage
- Inflation Benefits
- debtors
- business where price of the product increases faster than the price of resources
- · Unemployment
o % of people w/o jobs
- · Labor force- employed + unemployed
- · Not in the labor force:
o 16 or younger
o military personnel
o mentally insane
o jail mates
o stay at home mom/dads
o full time students;
retires
o discouraged (16+ years olds who have searched for a job for
2 weeks)
- · Calculate Unemployment Rate
o (# of unemployed)/(total labor force) * 100
- · 4 Types of Unemployment
o Seasonal- lifeguard/ Santa worker, etc.
o Frictional- between jobs, quit before you get the other jobs
o Structural- lack of skill/declining industry
o Cyclical- bad for society and individuals (you have a
recession)
- · Full Employment - occurs when there is no cyclical unemployment present in the economy
- · Okun's Law - for every one % of unemployment above the NRU occurs a 2% decline in real GDP
