1. ECONOMIC INDICATORS

2. The Business Cycle

3. What are economic indicators? Article: identify indicators

4. GROSS DOMESTIC PRODUCT The Expenditure Approach: Measures GDP by using data on consumption expenditure, investment, government expenditure on goods and services, and net exports.

5. Circular Flow of Income and Expenditures

6. What is included? What is not included?

7. GROSS DOMESTIC PRODUCT The Income Approach – Measures GDP by adding the incomes that firms pay households for the factors of production they hire. – The U.S. National Income and Product Account divide incomes into two big categories: Wages Interest, rent, and profits

8. Comparing Income Approach and Expenditure Approach Taxes, subsidies, and depreciation affect the value of items when they are counted. Each of these issues must be considered when adjusting the income measurement. After making adjustments the income approach almost gives the same estimate of GDP as the expenditure approach.

9. Statistical Discrepancy

10. REAL GDP VS. NOMINAL GDP

11. Table 3. Gross Domestic Product and Related Measures: Level and Change From Preceding Period http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

13. GROSS NATIONAL PRODUCT The market value of all the final goods and services produced anywhere in the world in a given time period by the factors of production supplied by residents of the country. U.S. GNP = U.S. GDP + Net factor income from abroad

15. CAUSES OF INFLATION DEMAND-PULL COST-PUSH WAGE-PRICE SPIRAL EXCESSIVE MONETARY GROWTH

16. EFFECTS OF INFLATION PURCHASING POWER DOWN SPENDING HABITS SPECULATION INCREASE DISTRIBUTION OF INCOME

17. CONSUMER PRICE INDEX Consumer Price Index (CPI) – A measure of the average of the prices paid by urban consumers for a fixed market basket of consumer goods and services.

18. The Market Basket

19. Simplified CPI Calculation.

20. 22.1 THE CONSUMER PRICE INDEX CPI = Cost of CPI basket at current period prices Cost of CPI basket at base period prices x 100 For 2000, the CPI is: = 100 $50 x 100 For 2003, the CPI is: = 140 $70 $50 x 100

21. 22.1 THE CONSUMER PRICE INDEX Measuring Inflation – Inflation rate – The percentage change in the price level from one year to the next. Inflation rate = = 16.7 percent 140  120 120 x 100 CPI in current year  CPI in previous year CPI in previous year x 100 Inflation rate =

22. THE CONSUMER PRICE INDEX In part (b), the inflation rate was high during the early 1980s, but low during the 1990s.

23. THE CPI AND THE COST OF LIVING – New Goods Bias New goods do a better job than the old goods that they replace, but cost more. The arrival of new goods puts an upward bias into the CPI and its measure of the inflation rate. – Quality Change Bias Better cars and televisions cost more than the versions they replace. A price rise that is a payment for improved quality is not inflation but might get measured as inflation.

24. THE CPI AND THE COST OF LIVING – Commodity Substitution Bias If the price of beef rises faster than the price of chicken, people buy more chicken and less beef. The CPI basket doesn’t change to allow for the effects of substitution between goods. – Outlet Substitution Bias If prices rise more rapidly, people use discount stores more frequently. The CPI basket doesn’t change to allow for the effects of outlet substitution.

25. NOMINAL AND REAL VALUES Dollars and Cents at Different Dates – To compare dollar amounts at different dates, we need to know the CPI at those dates. – Convert the price of a 2-cent stamp in 1905 into its 2005 equivalent: Price of stamp in 2005 dollars = = 2 cents x 195.6 9.4 = 42 cents Price of stamp in 1905 dollarsx CPI in 2005 CPI in 1905

26. http://www.bls.gov/cpi/tables.htm

28. Inflation Calculator http://www.bls.gov/data/inflation_calculator.htm

29. International CPI Data http://global-rates.com/economic- indicators/inflation/consumer- prices/cpi/cpi.aspx

30. UNEMPLOYMENT The survey counts as unemployed all persons who, during the week before the survey: – 1. Had no employment – 2. Were available for work, and either: – 1. Had made efforts to find employment during the previous four weeks, or – 2. Were waiting to be recalled to a job from which they had been laid off.

31. SOURCES AND TYPES OF UNEMPLOYMENT Types of Unemployment – Frictional unemployment – The unemployment that arises from normal labor turnover—from people entering and leaving the labor force and from the ongoing creation and destruction of jobs. – Structural unemployment – The unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs.

32. SOURCES AND TYPES OF UNEMPLOYMENT – Seasonal unemployment – The unemployment that arises because of seasonal weather patterns. – Cyclical unemployment – The fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion.

33. http://www.bls.gov/web/laus/lauhsthl.htm Current rates and historic high/low rates by state

34. National Unemployment rates http://data.bls.gov/timeseries/LNS14000000

35. LABOR MARKET INDICATORS Two Main Labor Market Indicators The unemployment rate The labor force participation rate – Unemployment rate – The percentage of people in the labor force who are unemployed. Unemployment rate = Number of people unemployed x 100 Labor force

36. LABOR MARKET INDICATORS – Labor force participation rate – The percentage of the working-age population who are members of the labor force. Labor force participation rate = Working-age population x 100 Labor force

37. LABOR MARKET INDICATORS Discouraged Workers – Discouraged worker – A person who does not have a job, is available to work, but has not made efforts to find a job within the previous four weeks.

38. LABOR MARKET INDICATORS – Full-time workers -People who usually work 35 hours or more a week. – Part-time workers - People who usually work less than 35 hours a week. – Involuntary part-time workers/ Underemployed workers - People who work 1 to 34 hours per week but are looking for full-time work.

39. The Human Development Index The figure shows the relationship between real GDP per person and the Human Development Index (HDI). Each dot represents a country. The small Africa country of Sierra Leone has the lowest HDI and the second lowest real GDP per person.

40. The Human Development Index The United States has the third highest real GDP per person but has the eighth highest HDI. Why is the United States not ranked higher on the HDI? Because the people who live in seven countries live longer, have better access to health care and education than do Americans.

41. The Great Depression