1. © 2001 South-Western, a division of Thomson Learning
Economics: Principles and Applications, 2e by Robert E. Hall & Marc Lieberman
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2. Production, Income, and Employment
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3. Production and Gross Domestic Product
GDP: A Definition
The Expenditure Approach to GDP
Other Approaches to GDP
Measuring GDP: A Summary
Real Versus Nominal GDP
How GDP Is Used
Problems with GDP
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4. Production and Gross Domestic Product
Gross Domestic Product (GDP)
The total value of all final goods and services produced for the marketplace during a given year, within the nation’s borders.
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5. Production and Gross Domestic Product
Intermediate Goods
Goods used up in producing final goods.
Final Good
A good sold to its final user.
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6. Production and Gross Domestic Product
Flow Variable
A measure of a process that takes place over a period of time.
Stock Variable
A measure of an amount that exists at a moment in time.
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7. Production and Gross Domestic Product
Expenditure Approach: Measuring GDP by adding the value of goods and services purchased by each type of final user. GDP = C + I + G + NX.
Consumption (C): The part of GDP purchased by households as final users.
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8. Production and Gross Domestic Product
Capital Stock: The total value of all goods that will provide useful services in future years.
Private Investment (I): The sum of business plant and equipment purchases, new home construction, and inventory changes.
Net Investment: Total investment minus depreciation.
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9. Production and Gross Domestic Product
Government Purchases (G)
Spending by federal, state, and local governments on goods and services.
Transfer Payment
Any payment that is not compensation for supplying goods or services.
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10. Production and Gross Domestic Product
Net Exports (NX)
Total exports minus total imports.
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11. Production and Gross Domestic Product
Value Added
The revenue a firm receives minus the cost of the intermediate goods it buys.
Value-Added Approach
Measuring GDP by summing the value added by all firms in the economy.
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12. Production and Gross Domestic Product
Factor Payments
Payments to the owners of resources that are used in production.
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13. Production and Gross Domestic Product
Factor Payments Approach
Measuring GDP by summing the factor payments made by all firms in the economy.
GDP = Wages and salaries + interest + rent + profit
= Total household income
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14. Production and Gross Domestic Product
Nominal Variable
A variable measured without adjustment for the dollar’s changing value.
Real Variable
A variable adjusted for changes in the dollar’s changing value.
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15. Production and Gross Domestic Product
We use GDP in the short run to alert us to recessions and give us a chance to stabilize the economy and, in the long run, to tell us whether our economy is growing fast enough to raise output per capita and our standard of living, and fast enough to generate sufficient jobs for a growing population.
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16. Production and Gross Domestic Product
Nonmarket Production
Goods and services that are produced, but not sold in a market.
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17. Production and Gross Domestic Product
Short-term changes in real GDP are fairly accurate reflections of the state of the economy. A significant short-term drop in real GDP virtually always indicates a decrease in production, rather than a measurement problem.
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18. Employment and Unemployment
Types of Unemployment
The Costs of Unemployment
How Unemployment Is Measured
Problems in Measuring Unemployment
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19. Employment and Unemployment
Frictional Unemployment
Joblessness experienced by people who are between jobs or who are just entering or re-entering the labor market.
Seasonal Unemployment
Joblessness related to changes in weather, tourist patterns, or other seasonal factors.
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20. Employment and Unemployment
Structural Unemployment
Joblessness arising from mismatches between workers’ skills and employers’ requirements or between workers’ locations and employers’ locations.
Cyclical Unemployment
Joblessness arising from changes in production over the business cycle.
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21. Employment and Unemployment
In macroeconomics, full employment is achieved when cyclical unemployment has been reduced to zero. But the overall unemployment rate at full employment is greater than zero because there are still positive levels of frictional, seasonal, and structural unemployment.
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22. Employment and Unemployment
When there is cyclical unemployment, the nation produces less output, and so some group or groups within society must consume less output.
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23. Employment and Unemployment
Potential Output
The level of output the economy could produce if operating full employment.
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24. Employment and Unemployment
Labor Force
Those people who have a job or are looking for one.
Unemployment Rate
The fraction of the labor force that is without a job.
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25. Employment and Unemployment
Involuntary Part-Time Workers
Individuals who would like a full-time job, but who are working only part time.
Discouraged Workers
Individuals who would like a job, but have given up searching for one.
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