Gross Domestic Product & Growth

Gross Domestic Product & Growth

Ch 12

National Income AccountingThe Dept of Commerce collects data to determine the strength our economy.The govts measurements are estimates.These Estimates are based on Demand & Supply aggregates. Aggregate, is a collection of items that are gathered together to form a total quantity.

Because of the Great Depression, economists felt they needed to monitor our economy, so they can predict and prevent trouble.Macroeconomics The Study of the behavior and decision making of an entire economy.

Gross Domestic Product (GDP)The total value of all goods and services produced within a Countries boarders in 1 year. The value of all final Durable goods: those products which have a usefulness of more than 1 year. Ex: Cars, Refrigerators, houses, etc..

Im a cutie and durable

I sold it, so Its durable

Chinas 2011 would be 6.97 trillionAmericas 2011 12.982 billion

3

Gross Domestic Product

c) Only the value of all final goods is used.d) Intermediate goods are not counted- those added to another product to create the finish product.

HOWEVER:

GDP does not account for non-market activities- bartering or volunteer services.

e) Non-Durable, Those goods that last for a short period of time. Ex: food, light bulbs, shoes

How is GDP Determined?

The Income Approach The Govt adds up all the incomes in the economy.

How is GDP Determined?GDP = C + I + G + E*The Expenditure Approach*C= personal consumer spending I= gross investmentG = government purchasesE = net exports

I just bought 20 shares

GDP = C + I + G + EPersonal Consumer Spending (C): Consumer purchases of durable goods.

Gross Investment (I): Business spending on equipment, machinery, & buildings.

Government Purchases (G): Total value of purchases by local, state, & Federal governments.Net Exports (E): Value of goods sent out of the country minus the value of those brought in.

Both approaches should give the same total8Gross National Product (GNP)GNP is the total value of all goods & services produced globally (Running business in other countries) by the citizens of a country in 1 year. - Subtract production of firms . owned by non-citizens. - Add production of companies . owned & operated by citizens . outside the nation.

It is believed 25 million Americans have hidden incomes not reported, about a half a trillion dollars.Key Terms, Day 1Gross domestic product (GDP)Durable goodsNondurable goodsNominal GDPReal GDPDepreciationIntermediate goods

The Business Cycle is the up and down changes of a market systems economic activity.

The activities which indicate changes in the business cycle include: EmploymentIncomeProduction Spending/savingsInterest rates Stock pricesInvestment

Phases of the Business CycleExpansion: growth in GDP.Peak: point where the GDP stops rising and the country is at its strongest & most productive.Recession: a business slowdown- a decline in GDP for 2 economic quarters (6 months).Depression: demand, production, and employment are at their lowest levels.Recovery: restoration of economic growth.

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Phases of the Business Cycle

Trough economys lowest point = Depression Contraction economys period of declineRecovery economys highest point= Expansion

Trying to control the cyclesThe Federal Reserve takes actions to regulate the economy. It tries to influence the GDP levels and inflation.Maintains national financial stability:~ The Fed makes more money available helps the economy grow: (more money = more spending = more jobs)

~ Taking money out of circulation to slow down the economy (less money = less spending = slowing inflation rate)

Hyperinflation- Govt prints too much extra money, but same amount of goods and services still exist so prices go up

Predicting the Business CycleLeading Indicators: anticipate where the economy is going by tracking:a) number of building permits issuedb) average worker hours (manufacturing)c) average weekly unemployment claimsd) stock prices of 500 common stocks

1930s Depression Worst Ever

Predicting the CycleCoincident Indicators: reflect the current economic status: a) personal income b) sales volume c) industrial production

Predicting the Business CycleLagging Indicators: what has taken place after a change in the cycle:a) use of consumer creditb) size of business income

The End

18Key Terms, Day 2ExpansionTroughRecessionDepressionBusiness cycleLeading indicatorLagging indicator