1. Gross Domestic Product

2. Gross Domestic Product: the darling data of Economic Indicators

3. What is GDP?
It is the dollar amount of all final goods and services produced in a country within a given time frame.
Measure of a countries overall economic performance
Has to be produced, here, and legal
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4. How to figure GDP Goes by national spending
Add up the following Government Spending (G), Consumer Spending (C), Business Investment Spending (Ig), Net Export Spending (Xn)

5. Government Spending (G)

6. Consumer Spending (C)

7. Business Investment Spending (Ig)

8. Net Export Spending (Xn)

9. Types of GDP
Real
Nominal
Per Capita
GDP Gap

10. Nominal vs. Real GDP
Nominal GDP is in current dollars (not adjusted for inflation)
Real GDP has been adjusted for inflation

11. Nominal GDP

12. Nominal GDP comparison
United States: $16.8 Trillion
China: $9.2 Trillion
Kazakhstan: $224 Billion
Croatia: $57 Billion

13. Per Capita GDP comparison
United States: $53,143
Croatia: $13,530
Kazakhstan: $13,172
China: $6,807

14. Per Capita GDP
GDP can give you an idea of a countries standard of living (GDP amount per person)
However, GDP per capita is a better indicator

15. GDP Gap Difference in Real GDP and potential GDP
Remember our ABC points on the PPF
Potential is based on FE or PPF

16. What does not count in GDP?
Used/second hand goods,
Gifts or transfer payments
Intermediate Good
Stocks
Unreported business income (tips)
Illegal activities
Transactions between banks
Volunteer or family work
US corporate production overseas

17. Basics of GDP counting Was this/will this, be counted somewhere else?
Was something finished and final produced?

18. Other National Accounts
This one is based on incomes not output
GDP Income Approach:
Wages (of all employees)
Rents (tenant, lease payments)
Interest (savings and bonds payments)
Profits (net income of businesses, corporate profits)
Statistical adjustment (indirect business tax, net foreign factor income in US)
Why do we not use this one as much?
Less accurate because people lie!

19. From GDP to Consumption and savings
If Consumption is around 70% of GDP then policy makers will want to know amount of Consumption and Savings
GDP – Depreciation of Fixed Capital = NDP
NDP – Business Taxes – Foreign Factor Income + Our FFI = National Income (NI)
NI – Social Security – Corporate Income Tax – Undistributed Corporate Profits + Transfer Payments = Personal Income (PI)
PI –Income Tax + Credit = Disposable Income (DI)
DI – credit payments = Household Income
At this point they can consume or save (consumption to GDP and Savings to Banks)

21. Economic Instabilities

22. http://www. youtube. com/watch
7KE&index=5&list=PL8hZtYVAf1pen9kswuBf6A Ez0eCDgR2GP

23. Business Cycles Ups and down of Real GDP
Interruptions in the economic growth of the US economy
We use GDP to figure out where we are in a cycle
Current figures are about 1.9% growth

24. Unemployment
Unemployed: someone who is WILLING and ABLE to work, but cannot find a job
Expressed as the unemployment rate (4% unemployment means 96% of people willing and able to work are working
Currently 4.8%

25. Levels of Unemployment
20% - 25% Very bad, depression %
10% - 15% bad, severe recession
6% - 8%, not good, we would be looking for policies to “fix the problem”
4%- 5% considered full employment
Currently approx. 4.8%

26. Why is 100% employment (0% unemployment) a bad thing?
Limits growth, no workers
Causes wage rates to increase, with limited supply of workers
Inflation of prices due to increase in spending

27. Types of Unemployment Frictional: between jobs
Structural: Change in market reduces demand for a certain skill
Cyclical: related to swings in business cycle
Technological: unskilled worker

28. Inflation An increase in the overall price level of products
Tells us if we are paying more of less for something than we did in the past

29. How is inflation measured?
Price Indexes measure the inflation over time
Economist have a base year to compare to all other years
So if we want to look at inflation from to 2016, then we may use 2005 as the base year
Currently 2.1%

30. The Consumer Price Index
The most common way the inflation is measured
Uses a “Market Basket” and compares price changes in the total for this basket compared to the base year
This gives them a percentage and this is inflation
The “market basket” is a large list of the most commonly purchased household products
There is also a measurement called a PPI or producer price index (we always like to have producer versus consumer options in figuring out the “why” of economics)

31. Misery Index
Inflation (price level) + Unemployment (UE) = Misery Index
6-7 is normal
8-10 and over we look for change
Less than 6 is good

32. Goals GDP growth: 3-4% Unemployment: 4-5% Price Level: 1-2%
Think PPC graph:
Inefficient: GDP 1%, UE 8%, PL .5%
Efficient: GDP 3%, UE 4%, PL 2%
Unattainable: GDP 9%, UE 3%, PL 8%

33. Current situation GDP growth 1.4% UE is about 4.8%
Price Level (inflation) is 1.9%
Misery index would be 6.7
Why in a recession could we have a lower misery index than we do now?