3 DefinitionGDP: market value of final goods and services produced in a country in a given yearReal GDP: GDP adjusted for inflation.
4 Percentages of American Men and Women over Age 16 Working Outside the Home, 1960 - 2001. Increase in female labor force participation increases the demand for housekeeping and child care.Unpaid household work is not counted in GDP.Paid household work is counted in GDP.The increase in female labor force participation has overstated GDP growth.
7 Expenditure Components of U.S. GDP, 2001 (billions of dollars) ConsumptionDurable goodsNondurable goodsServices835.92,041.34109.96,987InvestmentBusiness fixed investmentResidential investmentInventory investment1,201.6444.8-60.31,586.0Government purchases1,858.0Net exportsExportsImports1,034.11,383.0-348.9Total: Gross domestic product10,082.2
8 GDP and the Incomes of Capital and Labor GDP = Labor Income + Capital IncomeLabor incomeEquals 75% of GDPIncludes:WagesSalariesIncome of the self-employed
9 GDP and the Incomes of Capital and Labor GDP = Labor Income + Capital IncomeCapital incomeEquals 25% of GDPIncludes:ProfitsRentInterestRoyalties
10 Market value of final goods and services The Three Faces of GDP=Market value of final goods and servicesProductionExpenditureIncomeInvestmentConsumptionGovernmentpurchasesNet exportsCapital IncomeLabor Income
11 Components of GDP C: consumption I : investment in plant & equipment G: government spendingX-M: net exports
12 Limitations as a Measure Not a measurement of well-being, just economic activity.Does not consider the distribution of income.Unreported economic activity is not included.
13 Problems comparing per capita GDP across countries Bangladesh $270USA $35,000Exchange rate method and purchasing power method.
14 The Unemployment Rate Measuring Unemployment Labor force = employed + unemployed
15 Types of Unemployment Frictional: worker “between jobs” Cyclical: caused by bad economic conditionsStructural: worker’s skill set is no longer in demand
16 Question 4 Your mother-in-law buys a new car from a U.S. producer. Your mother-in-law buys a new car imported from Sweden.Your mother-in-law’s car rental business buys a new car from a U.S. producer.Your mother-in-law’s car rental business buys a new car imported from Sweden.The U.S. government buys a new domestically produced car for the use by your mother-in-law, who has been appointed the ambassador to Sweden.
17 Question 8: Labor Force, unemployment rate & Participation Rate 65 people10 <16 years of age10 retired25 full-time jobs5 part-time jobs5 full-time homemakers5 full-time students over 162 disabled and cannot workRest did not have jobs but wanted one but one has not searched in 3 months.