  GDP (Gross Domestic Product) – Basic measure of a nation’s economic output and income. Total market value of all goods and services produced in the economy in one year.  2 types- Nominal GDP, Real GDP, and Potential GDP Economic Indicators EPF.5a

  Potential GDP – Determined by the quantity and quality of its natural resources, size and skills of its labor force, and size and quality of capital resources.  Real GDP – Adjusted for inflation. Real GDP Per Capita is measured by dividing “ Real GDP per capita ” measured by dividing real GDP by the population. *Economic growth is measured by Real GDP.  Nominal GDP – measured in current dollars, reflects GDP and changes in prices Economic Indicators EPF.5a

  Consumer Price Index (CPI) – compares price levels from month to month or year to year.  Unemployment Rate – indicates the level of unemployment in the country. Unemployment rate is the percentage of the labor force (not population) who are not working and are actively seeking paid work. -Includes persons over 16 who are working for pay or actively seeking paid work. The unemployment rate is not always a perfect measure for the economy because it does not (1) include workers whose job prospects are so poor that they are discouraged from seeking jobs or (2) reflect under-employed people such as part- time workers who are looking for full time work. Economic Indicators EPF.5a

  Unemployment rates differ for different ages, races, and gender. This reflects differences in work experience, education/training, and skills.  Can be caused by people changing jobs, seasonal fluctuations in demand, changes in the skills needed by employers, etc.  When unemployment is high, the economy will not produce as much as it could. Unemployment, Inflation, and Reduced Economic Growth EPF.5b

  Inflation – Increase in the general level of prices. Reduces the value of money.  2 types of Inflation “Cost-push inflation” – Occurs when businesses raise prices to cover costs such as higher oil prices or rising wages. “Demand-pull inflation” – occurs when demand for goods and services is greater than the supply. *Inflation also results from increases in a nation’s money supply. Unemployment, Inflation, and Reduced Economic Growth EPF.5b

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  Monetary policy decisions by the Federal Reserve affects the supply of money, availability of credit, and interest rates in the economy. Interest rates act as incentives that influence people’s spending and saving decisions.  When the Federal Reserve raises interest rates, it discourages personal and business borrowing. They do this to relieve inflation.  When the Federal Reserve lowers interest rates, it encourages personal and business borrowing. The Federal Reserve does this in times of slow economic growth. Stabilizing the Economy EPF. 7b

  When there is slow growth or high unemployment in the economy, the government usually expands fiscal policy (spending) to stimulate the economy. Increasing spending and/or reducing taxes can promote more employment and output in the short run, but also makes the price level and interest rates rise. Stabilizing the Economy EPF. 7b

  Under inflationary conditions, the government sometimes contracts (slows down) federal spending to slow the economy. This can lower price levels and interest rates, but reduce employment and output levels in the short run. Stabilizing the Economy EPF. 7b

  Most local governments depend primarily on property taxes.  Most state governments depend on sales and/or income taxes.  The federal government gets most of it’s revenue from individual income taxes. Other sources include: -Payroll Taxes for Social Security and Medicare -Corporate Income Taxes -Excise Taxes (tobacco and alcohol) -Fees (Park entrance fees) -Tarriffs (Taxes on imports) Sources of Government Revenue EPF. 7c

  When federal revenues and expenditures are equal, the budget is balanced.  When federal expenditures exceed its revenues, the budget is in deficit  The budget is in surplus when revenues exceed expenditures.  When the budget is in deficit, the government borrows by selling securities to individuals, corporations, and other governments to finance the deficit.  The total money the federal government owes is known as the national debt. Balanced Budget, Deficit, and Debt EPF. 7d