1. How do we know if the economy is healthy?
Bell Ringer
How do we know if the economy is healthy?

2. Objectives
Explain what gross domestic product (GDP) is and what it measures.
Compare the GDP of the United States with other countries.

3. Gross Domestic Product
Gross domestic product (GDP) is the dollar value of all final goods and services produced within a country’s borders in a given year.
In short, GDP tracks the size of the economy.
It is a measurement of a nation’s economic output for a particular year.
Current U.S. GDP (FY2016): $18.57 trillion
Google’s World Development Indicators

4. What is NOT included in GDP?
Intermediate Goods (components of the final good)
Steel, corn syrup, car parts, etc.
Second-hand sales
Purely financial transactions (stocks & bonds)
Goods produced by U. S. firms overseas
The “Underground Economy”
Tips, royalties, under-the-table work
The Black Market

5. Closure Define Gross Domestic Product (GDP) in your own words.
What is one new or interesting thing that you learned today about the U.S. economy?

6. Key Terms
gross domestic product: the dollar value of all final goods and services produced within a country’s borders in a given year
intermediate goods: products used in the production of final goods

7. Bell Ringer
Based off what you’ve heard from me, other people, or the news, do you think the U.S. economy is in a period of recovery or decline?
How do you know this to be true? How do other people know this to be true?

8. Identify the phases of a business cycle.
Objectives
Identify the phases of a business cycle.
Analyze the impact of business cycles in U.S. history. 8

9. What is a business cycle?
The business cycle is the upward and downward movements of the GDP.
It refers to periods of expansion and contraction in the economy over several months or years.

10. Phases of a Business Cycle
The business cycle consists of four phases:
Expansion
Peak
Contraction
Trough
Checkpoint Answer: Expansion, peak, contraction, and trough

11. Contractions There are three types of contractions:
A recession is a long economic contraction (6 to 18 months) and is marked by a high unemployment rate.
A depression is a prolonged and severe recession that is characterized by high unemployment and low economic output.
Stagflation is a decline in real GDP combined with inflation.

12. Business Cycle Forecasting
Why do business cycles happen?
No single answer, but it has to do with imbalances between supply and demand.
What affects business cycles?
Negative external shocks (war) and positive external shocks (drop in the price of oil)
Consumer confidence in the economy

13. U.S. Recessions Since WWII
Cause: Oil embargo by Middle Eastern countries.
Cause: Inflation, rising gas prices.
1991
Cause: First Iraq War; rising gas prices.
2001
Cause: 9/11; Dot-Com bubble

14. The Great Recession
Cause: Sub-prime mortgage crisis; high gas prices

15. Key Terms
business cycle: a period of macroeconomic expansion followed by one of macroeconomic contraction
expansion: a period of growth as measured by a rise in real GDP
contraction: a period of economic decline marked by falling real GDP

16. Key Terms recession: a prolonged economic contraction
depression: a recession that is especially long and severe
stagflation: a decline in real GDP combined with a rise in the price level

17. Bell Ringer
What do you know about the financial crisis of (“The Great Recession”)? What is a recession?
What were some of the consequences of the crisis?

18. Objectives Define the Great Recession.
Explain the economic conditions that created the Great Recession, and some of its long-lasting consequences.

19. Video Preview Questions
What is a “subprime” mortgage?
What created the housing bubble? How did it burst?
What were the consequences?
What recovery measures were taken by the government?

20. “Crash Course: The 2008 Financial Crisis”
“The Crisis of Credit”

21. What is a mortgage?
How do people invest in mortgages?
What is a “subprime” mortgage?
How did the housing bubble burst?
What were the consequences?
What recovery measures were taken by the government?
Who was to blame?

22. The 2008 Financial Crisis
In early 2000s, mortgage companies and banks began to loan people money who could not afford to pay these loans back.
When people began defaulting on their home loans, it triggered a domino effect that hit banks and investors hard starting in 2008.
It was the worst worldwide financial crisis since the Great Depression and sent the U.S into a recession it is still trying to recover from.
Often called “The Great Recession”
Checkpoint Answer: Banks and creditors were greatly effected by the huge amount of defaulted mortgages, which led the nation into economic turmoil.

23. Bell Ringer
What ideas/images/thoughts do you associate with unemployment?
The current unemployment rate is 4.1 percent. How long do you think the average person remains unemployed?
A: 26 weeks

24. Objectives Define unemployment and the labor force
Describe how the government measures the economy’s rate of unemployment
Identify the problems in interpreting unemployment data

25. Identifying Unemployment
Natural Rate of Unemployment (Long Term)
The amount of unemployment that the economy normally experiences and does not go away on its own even in the long run.
Cyclical Unemployment (Short Term)
Associated with short-term ups and downs of the business cycle and refers to the year-to-year fluctuations in unemployment around its natural rate.

26. How Is Unemployment Measured?
Unemployment is measured by the Bureau of Labor Statistics (BLS).
It surveys 60,000 randomly selected households every month.
The survey is called the Current Population Survey.
Based on the answers to the survey questions, the BLS places each adult (over 16) years old into one of three categories:
Employed
Unemployed
Not in the labor force

27. Employment Definitions
Employed: A person is considered employed if he or she has spent some of the previous week working at a paid job.
Unemployed: A person is unemployed if he or she is on temporary layoff, is looking for a job, or is waiting for the start date of a new job.
Labor Force: the total number of available workers; the sum of the employed and the unemployed.
Not in the Labor Force: A person who fits neither of these categories, such as a full-time student, homemaker, disabled person, retiree, etc., is not in the labor force.

28. Issues in Measuring Unemployment
Discouraged workers, people who would like to work but have given up looking for jobs after an unsuccessful search, don’t show up in unemployment statistics.
Underemployed workers are counted as fully employed.
Some people falsely claim to be unemployed in order to receive financial assistance, even though they aren’t looking for work.