2. Econ Unit 6 GDP, GNP, International Trade, Unemployment, Inflation

3. I. GDP A.GDP -- Dollar Amount of all final goods and services produced within a countries border in a year 1.Single most important economic statistic 2.Measured by taking samples to track production, estimating prices and quantities, still can take up to 6 months to report. 3.Importance -- measures production which supplies goods and services, people dissatisfied an elect new officials to put in new economic plans. B.Exclusions to GDP 1.Intermediate Goods -- Tires on cars, etc. 2.Second Hand Sales -- used cars, garage sales, etc. 3.US production in other countries -- GM Plants in Mexico 4.Non-Market Activities -- Babysitting, mowing lawn 5.Underground Economy (black market) -- drugs 6.Securities -- stocks, bonds, etc. -- no new production A.GDP -- Dollar Amount of all final goods and services produced within a countries border in a year 1.Single most important economic statistic 2.Measured by taking samples to track production, estimating prices and quantities, still can take up to 6 months to report. 3.Importance -- measures production which supplies goods and services, people dissatisfied an elect new officials to put in new economic plans. B.Exclusions to GDP 1.Intermediate Goods -- Tires on cars, etc. 2.Second Hand Sales -- used cars, garage sales, etc. 3.US production in other countries -- GM Plants in Mexico 4.Non-Market Activities -- Babysitting, mowing lawn 5.Underground Economy (black market) -- drugs 6.Securities -- stocks, bonds, etc. -- no new production

5. II. Gross National Product A.GNP -- dollar amount of all final goods and services produced by US owned factors of production 1.GNP = GDP + US resources outside the borders - foreign resources inside the US borders 2.GNP is directly related to the income of all US Citizens. B.Other Measures of Income 1.Net National Product = GNP - depreciation 2.National Income = NNP - indirect business taxes 3.Personal Income = NI - SS tax, corporate earnings, corporate income tax + transfer payments 4.Disposable Personal Income = Money left over C.Output Expenditure Model (Ways to count GDP) 1.Consumption ( C ) = Money from disposable income 2.Investment ( I ) = Money from retained corporate earnings 3.Government ( G ) = Money from tax dollars 4.Foreign (F ) = Exports - Imports A.GNP -- dollar amount of all final goods and services produced by US owned factors of production 1.GNP = GDP + US resources outside the borders - foreign resources inside the US borders 2.GNP is directly related to the income of all US Citizens. B.Other Measures of Income 1.Net National Product = GNP - depreciation 2.National Income = NNP - indirect business taxes 3.Personal Income = NI - SS tax, corporate earnings, corporate income tax + transfer payments 4.Disposable Personal Income = Money left over C.Output Expenditure Model (Ways to count GDP) 1.Consumption ( C ) = Money from disposable income 2.Investment ( I ) = Money from retained corporate earnings 3.Government ( G ) = Money from tax dollars 4.Foreign (F ) = Exports - Imports

6. US GNP

7. III. GDP and Price Level Changes A.Price Index - Statistical series that measures change in price over time. 1.CPI -- Consumer price index a)Tracks inflation using retail prices b)90,000 items in 364 categories 2.PPI -- Producer Price Index a)Wholesale prices of 3000 commodities B.Making a price index 1.Select a base year for comparison 2.Create a collection of goods called a market basket 3.Total up all the prices of all goods and services in basket for all years 4.PI = price of market basket / price of market basket in base year X 100 C.Real vs Current GDP 1.Current (nominal) GDP is not adjusted for inflation Changes 2.To get Real GDP (inflation adjusted) = Current / PI X 100 3.Real shows you if production levels have really increased. A.Price Index - Statistical series that measures change in price over time. 1.CPI -- Consumer price index a)Tracks inflation using retail prices b)90,000 items in 364 categories 2.PPI -- Producer Price Index a)Wholesale prices of 3000 commodities B.Making a price index 1.Select a base year for comparison 2.Create a collection of goods called a market basket 3.Total up all the prices of all goods and services in basket for all years 4.PI = price of market basket / price of market basket in base year X 100 C.Real vs Current GDP 1.Current (nominal) GDP is not adjusted for inflation Changes 2.To get Real GDP (inflation adjusted) = Current / PI X 100 3.Real shows you if production levels have really increased.

8. CPI

9. IV. Inflation A.Measurements 1.Price Level = Refers to price at one point in time 2.Inflation = rise in the general level of prices a)Creeping Inflation -- 1% - 3% per year b)Galloping Inflation -- up to 100% - 300% per year c)Hyperinflation -- greater than 500% or more 3.Deflation -- Decrease in general level of prices B.Effects of Inflation 1.Dollar buys less 2.Change spending habits -- Investors and consumers spend/save more/less 3.Tempts people to buy expensive goods as investments, house, diamonds 4.Distribution of income -- lenders hurt more than borrowers. A.Measurements 1.Price Level = Refers to price at one point in time 2.Inflation = rise in the general level of prices a)Creeping Inflation -- 1% - 3% per year b)Galloping Inflation -- up to 100% - 300% per year c)Hyperinflation -- greater than 500% or more 3.Deflation -- Decrease in general level of prices B.Effects of Inflation 1.Dollar buys less 2.Change spending habits -- Investors and consumers spend/save more/less 3.Tempts people to buy expensive goods as investments, house, diamonds 4.Distribution of income -- lenders hurt more than borrowers.

10. Inflation

11. V. Unemployment A.Unemployment Rate 1.Bureau of Census -- group polls households to estimate number of unemployed. 2.Purpose of rate is to show severity of job shortage 3.Unemployment Rate = # of unemployed / # of people in the labor force. B.Unemployed 1.Available to work 2.Attempting to find work 3.Work less than 1 hour per week for a wage. C.Problems 1.Fails to count those who have given up looking for work. 2.Part time workers counted as full time, even if they are looking for full time employment. A.Unemployment Rate 1.Bureau of Census -- group polls households to estimate number of unemployed. 2.Purpose of rate is to show severity of job shortage 3.Unemployment Rate = # of unemployed / # of people in the labor force. B.Unemployed 1.Available to work 2.Attempting to find work 3.Work less than 1 hour per week for a wage. C.Problems 1.Fails to count those who have given up looking for work. 2.Part time workers counted as full time, even if they are looking for full time employment.

12. V. Unemployment D.Types of Unemployment 1.Frictional - Workers are between jobs. (Always have frictional Unemployment) 2.Structural -- change in economy reduces demand for certain workers. Ex: Low demand for US cars, factory workers get laid off. 3.Cyclical -- Unemployment related to changes in business cycle (recessions). Ex: makers of all durable goods lose jobs. 4.Seasonal -- Unemployment due to a change in the season. Ex: landscapers, lifeguards, cashiers. 5.Technological -- workers less skilled replaced by technology. Ex: bank teller and ATM, auto workers and robots. D.Types of Unemployment 1.Frictional - Workers are between jobs. (Always have frictional Unemployment) 2.Structural -- change in economy reduces demand for certain workers. Ex: Low demand for US cars, factory workers get laid off. 3.Cyclical -- Unemployment related to changes in business cycle (recessions). Ex: makers of all durable goods lose jobs. 4.Seasonal -- Unemployment due to a change in the season. Ex: landscapers, lifeguards, cashiers. 5.Technological -- workers less skilled replaced by technology. Ex: bank teller and ATM, auto workers and robots.

13. VI. International Trade A.Comparative and Absolute Advantage 1.Absolute Advantage -- Able to produce more than another country. 2.Comparative Advantage -- Able to produce a product at a relatively lower opportunity cost than another country. B.Trade Barriers 1.Tariff -- Tax on imported goods. 2.Quota -- Limit on the number of products that can be imported. 3.Trade Barriers are designed to protect less efficient domestic industry. 4.Decreased supply leads to higher prices for consumers. C.Free Trade 1.Allows countries to specialize in products they have a comparative advantage with. 2.In the long run, it increases wealth of all countries involved. 3.Consumers benefit by gaining the best selection of goods at the lowest prices. A.Comparative and Absolute Advantage 1.Absolute Advantage -- Able to produce more than another country. 2.Comparative Advantage -- Able to produce a product at a relatively lower opportunity cost than another country. B.Trade Barriers 1.Tariff -- Tax on imported goods. 2.Quota -- Limit on the number of products that can be imported. 3.Trade Barriers are designed to protect less efficient domestic industry. 4.Decreased supply leads to higher prices for consumers. C.Free Trade 1.Allows countries to specialize in products they have a comparative advantage with. 2.In the long run, it increases wealth of all countries involved. 3.Consumers benefit by gaining the best selection of goods at the lowest prices.

14. US Trade

15. Quick Write 15 points In 3-4 sentences summarize the 3 most important points of the unit. What stood out to you, what will you remember most, and do you have any questions? In 3-4 sentences summarize the 3 most important points of the unit. What stood out to you, what will you remember most, and do you have any questions? Turn into Mrs. E – make sure your name is on it!