Economic Performance and Growth The US Economy Economy

Economic Performance and Growth

The US Economy • Economy- the structure of economic activity in a locality, a region, a country, a group of countries or the world • Gross Domestic Product (GDP)- measures the market value of all final goods and services produced in a country in a given period, usually one year • National income accounts (collect data from US) • No Double Counting

Calculating GDP • GDP based on expenditures approach C+I+G+(X-i. M)=GDP • Consumption • Investment • Government Purchases • Net Exports • GDP based on income approach (aggregates income from production)

What GDP Misses • • • Household Production (childcare, meal prep, home repair) Underground Economy (illegal, work off book) Leisure, Quality, and variety (standard of living) Depreciation- capital stock used up or obsolete Does not reflect all costs (environment)

Adjust GDP for Price Changes • Nominal GDP Versus Real GDP (adjust for inflation) • Price Indexes (items price each year) • Consumer Price Index- change over time in the cost of buying goods and services

US Economic Fluctuations • Business cycle- reflects rise and fall of economic activity relative to long-run growth trend of the economy • Recessions and Depression- reduction in national production over several quarters • Long term growth • Increase amount and quality of resources • Better technology • Improvement in rules of the game (property rights, patent law, legal system)

US Economic Fluctuations • Different Impacts on States • Regional growth • Seasonal • Business Cycles Around the globe • World can be hit by recession

Economic Indicators • Leading Indicators • Business slows • Stock market turns down • Coincident Indicators • Total employment, personal income, industrial production • Lagging Indicators • Interest rate, loans outstanding, average duration of employment

Aggregate Demand Supply • Aggregate Output- composite measure of all final goods and services produced in an economy in a given period • Price level- reflects prices of all goods and services in an economy in a year

Productivity • PPF and Growth • Standard of living- economy’s level of prosperity as measured by the value of goods and services produced, on average, person • Labor Productivity • Human and Physical Capital • Capital Deepening- increase in capital per worker • Rules of the Game

Standard of Living • Industrial Economies (Developed) • Developing economies • Education and economic development • High literacy better development • G 7

Research and Development • Basic Research- search for knowledge without knowing how it will be used • Applied Research- Answer particular question or apply to specific product • R&D Comparisons Across Countries

Technological Change and Employment Levels • Technological Change and labor productivity • Increase production and employment (assembly line) • Could cost jobs (replaced by machine) • Technological Change and Employment Levels • Workers 2050% more productive than in 1870 • Creates high standard of living (more leisure time) • Jobs lost in short run

Industrial Policy • Government involvement • Industrial policy- government can help nurture technology and industry of the future • Identifying industry Clusters • Cluster- Companies in same industry locate to same place (silicon valley, Hollywood) • Pitfalls of Trying to Pick Technological Winners • Government not most efficient with resources • Fear of government helping based on connections