GDP/GNP Measuring the Economy
economic indicator A statistic about the economy. Allows analysis of economic performance and predictions of future performance. Include various indices, earnings reports, and economic summaries.
Conference Board Leading Economic Indicators Average weekly hours, manufacturing Average weekly initial claims for unemployment insurance Manufacturers' new orders, consumer goods and materials Manufacturers' new orders, nondefense capital goods Building permits, new private housing units Stock prices, 500 common stocks Money supply, M2 Interest rate spread, 10-year Treasury bonds less federal funds Index of consumer expectations
Measures manufacturing activity and is determined monthly based on five indicators: new orders, production, supplier deliveries, inventories, and employment. Institute for Supply Management Index
Major US Stock Indices moneycentral.msn.com
30 – 2 Year Yield Spreads
Two Measurements GDP GNP Gross Domestic Product Dollar value of all G/S produced within a countries borders in a given year. Foreign producers in US? US companies oversees? Gross National Product Dollar value of all G/S produced by citizens of a country during a given year. Foreign producers in the US? US companies oversees?
Two Calculations Sales Salaries Add together the receipts for all recorded transactions Black market Barter Inflation Variety Add together the salaries of all income earned Under the table Efficiency Double counting Distribution
What GDP does NOT tell us! Non-market Activities Some people do activities for themselves that others pay for Oil changes/lawn care Quality of Life Production might be predicated on over-worked employees Medical internists Distribution of Wealth There may be a few uber-rich people and many incredibly poor Loss of US middle class Inflation Values may rise without increasing production 2 Turtle Doves/automobiles
More on the limitations of GDP Underground Activity Illegal activities do not get recorded by governments Drug sale/prostitution Per Capita Income Some countries have huge populations while others do not US average is just under $50,000 Variety of Goods Economies can be narrowly focused Oil production Negative Externality Production can result in pollution Cuyahoga River fire
Publicly Held Federal Debt / GDP
Reflection: Is GDP/GNP a good measure of an economy? How does knowing the statistic’s shortcomings help in evaluating an economy? Give an example of a country who’s GDP/GNP does not accurately measure the economy. State the limitation from the information in your notes.