2 Measuring Economic Growth Refers to the steady increase in production of goods and services in an economic system.A high rate of employment and a low rate of business failures are indicators that our economy is doing well.Output or production is the total of all goods and services our nation produces.US only has 7 percent of the worlds land and less than 5 percent of the worlds population. We account for more than 20 percent of all goods and services produced in the world.
3 Gross Domestic Product (GDP) Is the total dollar value of all final goods and services produced in a country during one year.The federal government collects from produces and estimates our national output.GDP includes 3 major categoriesWhat consumers spend for food, clothing, and housing.What business spend for buildings, equipment, and supplies.What government agencies spend to pay employees and to buy supplies.
4 Gross Domestic Product (GDP) Cont. GDP does not include work that you do for yourself!!!Example: Mowing the lawn, working on your car, etc…It does measure if you pay a company to do it for you.Point to remember is that GDP only measures final goods it does not take in consideration intermediate goods.If GDP is growing each year it is a good indicator that the economy is doing well.
7 Gross Domestic Product (GDP) and GDP per capita Base Year: means the year chosen to compare an item, such as price, to any other year.StocksYou can chose any year to be your base yearGDP per capita: is calculated by dividing GDP by total population. (GDP ÷ Population= GDP per capita)An increase in GDP per capita means that our economy is growing.Decrease in GDP per capita means that economy is having trouble
8 Labor ProductivityLabor Productivity: is measured in terms of the number of items produced per worker.Increase of output per workerImprovements in the quality of capital resources , worker training, and management techniques are some results of more output from the same number of workers. This is called Productivity Increase.Over that last 30 to 40 years our nation has increased in productivity in many of them but in the last few years this has grown smaller. Why?
9 Labor Productivity Cont. Over a ten year span wages have increased 5 times more than did labor productivity.Min. wage fightCost of livingStandard of livingIf wages increase faster than productivity the cost of producing goods goes up and prices rise.So wages go up but there is no change in standard of livingA great deal of attention has been given in recent years to motivate to improve productivity. Why?1890 workers worked 60 hours a week now we work less then 40. We produce more due to modern technology and efficient working methods
10 The Business Cycle Are the recurring ups and downs of GDP There are phases:Prosperity: the 90’s (Tech boom)Recession: 07 and 08 ( some say we are still in one)Depression: (Some say 07 to present)Recovery: 2011 to present
11 ProsperityIs the phase when most people who want to work are working and business produce goods and services in record number.Wages increase as well as GDPDemand is highTechnology boom in 1990’sThis will not last forever
12 RecessionThis is when demand begins to decrease, businesses lower production of goods and services, unemployment begins to rise, and GDP growth slows for two or more quarters.Ripple effectEX: Automotive industry
13 DepressionIs a phase marked by a prolonged period of high unemployment, weak sales of goods and services, and business failures.In the unemployment rate was 25% this was called the great Depression.2007 we had a similar percentageMany people can not afford the basic needs
14 RecoveryIs the phase in which unemployment begins to decrease, demand for goods and services increase, and GDP begins to rise.2012 EQ was implementedEQ was the governments way of pumping money into the economy to grow the economy.Bond buyingRecovery can be slow or fastMoves the nation back to prosperity
16 Inflation and Deflation Inflation: is a sustained increase in the general level of price.One type is when the demand becomes higher than supply causing prices to riseLarge supply of money, earned or barrowed, is spent for goods that are in short supply,Wages can go up but the cost for goods go upMild inflation can be good for the economy. Wages go up slower than the price of production.
17 Inflation Cont.The price of the product sold are high in relation to the cost of labor.Producers make a higher profit and tend to expand production and hire more people.Customer Price Index (CPI): is a number that compares prices in one year with some earlier years.Hyperinflation: prices go up faster than wages causing more spending on basic needs. P.47
18 Deflation Means a decrease in the general level of prices. Prices for products begin to lower this usually occurs in a recession or depression.People have less money to spendEconomy begins to stand still