Ch8. Gross Domestic Product

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Ch8. Gross Domestic Product

• Chapter Objectives
• What is GDP?
• How is GDP measured?
• What are the national income accounts?
• What is the difference between GDP and real
  GDP?
• How does our GDP compare to those of other
  nations?
• How is per capita GDP calculated?
• What are the shortcomings of GDP as a measure
  of national economic well-being?
• How do we graph the CIGX line?

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Ch8. Gross Domestic Product

• What is GDP?
• It is the nations expenditure on all the final
  goods and services produced during the year at
  market prices.
• A Summing up C I G X
• How GDP Is Measured?
• The flow-of-income approach,
• The expenditures approach

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Ch8. Gross Domestic Product

• The difference b/w GNP and GDP
• GDP measures the value of all the final goods and
  services produced within the borders of the
  United States, while GNP measures the output of
  all Americans, whether the goods and services are
  produced here or abroad.

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Ch8. Gross Domestic Product

• The advantages of using GDP over using GNP
• GDP corresponds more closely than GNP to many
  important series of economic data, such as
  employment and industrial production. It is also
  more useful for making international comparisons
  , because most other nations now express their
  output in terms of GDP.

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Ch8. Gross Domestic Product

• The Expenditures Approach
• GDP C I G X
• The Flow-of-Income Approach
• GDP - Depreciation NNP
• NNP-Indirect business taxes subsidies
  National Income
• National Income is the sum of compensation to
  employees, corporate profits, net interest,
  rental income and proprietors income.

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Ch8. Gross Domestic Product

• Two Things to Avoid When Compiling GDP
• Multiple counting
• we counts only what we spend on final goods and
  services- not those of an intermediate nature.
• Value-added approach to measure GDP
• We dont include intermediate goods and used
  goods in GDP.
• Treatment of Transfer Payments
• Social Security, unemployment insurance check
• Medicare, Medicaid, public assistance and other
  government transfer payment

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Ch8. Gross Domestic Product

• GDP vs. Real GDP
• Real GDP(current year) GDP(current year) x GDP
  deflator(base year)/GDP deflator(current year)
• GDP measures changes in output and prices, Real
  GDP measures just changes in output.
• Explain what happen if GDP rises and real GDP
  fall? (GDP deflator rose, real GDP fall)

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Ch8. Gross Domestic Product

• Per Capita Real GDP
• per capita GDP GDP/Population
• per capita real GDP real GDP/Population
• Shortcomings of GDP as a Measure of National
  Economic Well-Being
• Household Production
• Illegal Production
• The Underground Economy
• Treatment of Leisure Time
• Human Costs and Benefits

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Ch8. Gross Domestic Product

• Exercise
• Do ch8 multiple choice questions and problems.

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Ch9. Economic Fluctuations, Unemployment, and
Inflation

• Chapter Objectives
• Consider various business cycle theories
• Show how economic forecasting is done
• Measure the GDP gap
• How to calculate the unemployment rate
• The types of unemployment
• Construct a consumer price index

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Ch9. Economic Fluctuations, Unemployment, and
Inflation

• The Conventional Three-Phase Business Cycle
• recession, recovery and prosperity
• Business Cycle Theories
• Endogenous Theories
• innovation theory
• psychological theory(optimism/pessimism of
  businessowners)
• inventory cycle theory
• monetary theory(inflation, decrease money supple,
  go to recession)
• underconsumption theory

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Ch9. Economic Fluctuations, Unemployment, and
Inflation

• Business Cycle Theories
• Exogenous Theories
• sunspot theory
• Perhaps no single explanation, whether exogenous
  or endogenous can explain each of the cycles we
  have experienced.

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Ch9. Economic Fluctuations, Unemployment, and
Inflation

• Business Cycle Forecasting
• Analytic Forecasting
• Barometric Forecasting
• The GDP Gap
• the gap is the difference between the potential
  GDP and actual GDP.
• Unemployment
• Unemployment ratenumber of unemployed/labor force

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Ch9. Economic Fluctuations, Unemployment, and
Inflation

• Types of Unemployment
• Frictional unemployment(persons who are between
  jobs or just entering or reentering the labor
  market)
• Structural unemployment(out of job for a long
  period of time, say, a couple of years)
• Cyclical unemployment
• Seasonal unemployment

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Ch9. Economic Fluctuations, Unemployment, and
Inflation

• Inflation
• Inflation is a rise in the price level.
• Consumer Price Index(CPI) measures changes in our
  cost of living.
• Deflation and Disinflation
• Deflation is a decline in the price level.
• (just a little deflation can be very bad news to
  business firms but deflation is good news to
  consumers, it means that they will be paying
  lower prices)

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Ch9. Economic Fluctuations, Unemployment, and
Inflation

• Disinflation
• Disinflation occurs when the rate of inflation
  declines.
• The construction of the CPI
• please refer text book page 202 Advanced work.
  You need to know how to calculate CPI.

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Ch9. Economic Fluctuations, Unemployment, and
Inflation

• Anticipated and Unanticipated Inflation
• Inflation has hurt creditors and helped debtors
• Those who are hurt by unanticipated inflation are
  people who live on fixed incomes, particularly
  retired people, and those who hold long-term
  bonds.
• Some people gain and others lose, the gains and
  losses re exactly equal.

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Ch9. Economic Fluctuations, Unemployment, and
Inflation

• Anticipated and Unanticipated Inflation
• when inflation is fully anticipated, there are no
  winners or losers.
• Example if the real rate of interest were 7
  percent, and there was an expected rate of
  inflation of 3 percent, how much the creditors
  would charge?
• If nominal interest rate is 6, the expected rate
  of inflation is 10, how much is the real rate of
  interest?

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Ch9. Economic Fluctuations, Unemployment, and
Inflation

• Anticipated and Unanticipated Inflation
• nominal interest rate /- inflation real
  interest rate
• Theories of the Causes of Inflation
• Demand-Pull Inflation
• too many dollars chasing too few goods(during the
  war period)
• Cost-Pull Inflation(1973-74, 1979)
• higher prices raise everyones cost of living,
  engendering further wage increase