# Economic Measurements How GDP, GDP per capita, and labor productivity measure economic performance.

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Economic Measurements How GDP, GDP per capita, and labor productivity measure economic performance.

Measuring Economic Growth Economic growth - a steady increase in the production of goods and services in an economic system. The US has 7% of the world’s land has less than 5% of the world’s labor produces more than 20% of all goods & services

Gross Domestic Product Formerly called Gross National Product (GNP) The total dollar value of all final goods & services produced in a country during one year. Includes Consumer spending for food, clothing, housing Business spending for buildings, equipment, supplies Govt. agency spending for employee pay, supplies Does NOT include Value of work you do for yourself

Gross Domestic Product In order to make fair & accurate comparisons across different years, current prices must be adjusted. current prices Base year The year chosen to compare an item Constant Dollar GDP The value of GDP after taking out the effect of price changes (sometimes called Real GDP) If GDP is increasing from year to year, it indicates a healthy, growing economy.

Current Prices/Adjusted Prices Comparing GDP across years directly would be misleading, since GDP is not adjusted for inflation. An increase of GDP from this year to the next could reflect an increase in the general price level, an increase in production, or a combination of the two possibilities. In order to compare GDP figures fairly and accurately across years, you must use real GDP (GDP that has been adjusted for inflation) as opposed to current (unadjusted) GDP.

GDP Per Capita Output per person =GDP/total population Increasing indicates growth Decreasing may indicate economic trouble

Labor Productivity Productivity = the # of items per worker 3 things can improve productivity Improved capital resources Worker training Management techniques Productivity increase: an increase in goods & services produced from the same amounts of labor Increases in productivity have gotten smaller.

The Business Cycle The movement of the economy from one condition to another and back again. Has four phases: Prosperity Recession Depression Recovery

The Business Cycle – Prosperity Phase Unemployment is low Most people who want to work are working High demand for goods & services Businesses produce record numbers Wages are good Rate of GDP growth increases

The Business Cycle – Recession Phase Unemployment begins to rise Demand for goods & services begins to decrease Rate of GDP growth slows for two or more quarters of the calendar year Can vary in severity and length

The Business Cycle – Depression Phase Period of prolonged high unemployment Weak sales of goods and services Business failures GDP falls rapidly

The Business Cycle – Recovery Phase Unemployment begins to decrease Demand for goods and services increases GDP begins to rise again

Inflation and Deflation Inflation – a sustained increase in the general level of prices. One measure of inflation is the Consumer Price Index Mild inflation can stimulate economic growth Deflation – a decrease in the general level of prices Usually occurs during periods of recession & depression. Product prices are lower but people have less \$

Our Economic Future Growth determined by ability to produce output. Solutions for serious economic problems need to be found Access to health care Housing Traffic Crime Unemployment Economic Growth must continually increase to maintain or increase our standard of living.

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