Economic Growth and Measurement

Economic Goals  Economic Freedom  Economic Stability  Economic Security  Economic Equity  Economic Efficiency  Economic Growth  Full-Employment

Economic Freedom  The freedom to choose careers, make business decisions.

Economic Stability  Price stability and stable growth are critical. Fiscal and Monetary Policies are used to achieve this goal.

Economic Security  Protection from adverse economic events such as layoffs and illnesses.

Economic Equity  Equality of opportunity and a fair distribution of wealth.

Economic Efficiency  The productive use of scarce resources.

Economic Growth  Sustained period during which a nation’s total output of goods and services increases.

Full Employment  Full employment is the lowest possible unemployment rate, with the economy growing and all factors of production being used as efficiently as possible.

Major Economic Indicators  Gross Domestic Product (GDP)  Unemployment  Consumer Price Index (CPI)

Gross Domestic Product  Gross Domestic Product, or GDP, is the total value of all goods and services produced for final use during a given year.  It is considered the most comprehensive measure of a country’s economic well- being.  The target rate for GDP is 3 – 5% per year.  The formula for GDP is C + I + G + (X – M)

C + I + G + (X – M) = GDP  Consumption – Consumer Sector  Gross Investment – Investment Sector (Businesses)  Government – Government Sector  Net Exports – Foreign Sector

GDP  GDP v. GNP  Per Capita GDP  Real v. Current GDP  What isn’t included in GDP?  Environmental Impact

Unemployment  The labor force is the sum of employed and unemployed persons. To be considered unemployed, the person has to be actively looking for work.  Unemployment Rate = Number Unemployed/Labor Force  Economists consider the labor force to be fully employed when the unemployment rate is less than 4 – 6%.  Underemployment is a growing problem.  Current statistics can be found at

Unemployment  There are five categories of unemployment.  Seasonal unemployment is unemployment resulting from changes in the weather or changes in the demand for certain products or services.  Technological unemployment is unemployment caused by automation that reduces the need for workers.

 Structural unemployment is unemployment that occurs when a fundamental change in the operation of the economy reduces the demand for workers and their skills. It is the most serious type of unemployment.  Cyclical unemployment is unemployment directly related to swings in the business cycle.  Frictional unemployment is unemployment caused by workers who are between jobs.

Consumer Price Index  The CPI should be 3% or less.  There are two types of inflation.  Cost-Push Inflation  Demand-Pull Inflation 

The Business Cycle  The Business Cycle refers to the systematic changes in real GDP marked by alternating periods of expansion and contraction.  There are four stages of the business cycle: expansion, peak, contraction, trough.  A recession is when there are two quarters of a contraction in real GDP.  A depression is a severe, prolonged recession. For example, a 25% unemployment rate, instead of an 11% unemployment rate.

The Business Cycle

Business Cycles

A final thought….