EMC Publishing LLC 11 Section 1 National Income

11 Section 1 National Income Accounting © EMC Publishing, LLC

What Is Gross Domestic Product? • Gross domestic product (GDP) is the total value of all final goods and services produced annually in a country. • . © EMC Publishing, LLC

Why Count Only Final Goods? • final good • sold to its final user. • intermediate good is a good that • Used to make another good or service • double counting, or counting goods more than once. © EMC Publishing, LLC

Does GDP Omit Anything? • Illegal goods • Used goods • house work • Barter • Goods/services made in previous years • Financial transactions (stocks, bonds) • Government transfer payments © EMC Publishing, LLC

The Difference Between GDP and GNP • GDP is gross domestic product • Goods and services made in the USA • GNP is the gross national product. • GNP • Made by American companies anywhere in the world © EMC Publishing, LLC

11 Section 2 Measuring GDP © EMC Publishing, LLC

How is GDP Measured? • The GDP of the United States in 2014 was more than $16 trillion. • Amounts spent by the household sector are called consumption. OR C • Amounts spent by the business sector are called investment. OR I • Amounts spent by government sector: Government OR G • Net Exports (exports – imports) OR (X-I) © EMC Publishing, LLC

GDP Versus Quality of Life • Greater production of goods and services is only • Per capita GDP = GDP ÷ Population. = better standard of living • Leisure v. work © EMC Publishing, LLC

11 Section 3 Real GDP © EMC Publishing, LLC

The Two Variables of GDP: P and Q • GDP is equal to current prices (P) times the current quantity (Q) of goods produced. • GDP = Current Prices x Current Quantity of Goods Produced • Account for inflation and deflation • = calculate Real GDP © EMC Publishing, LLC

Real GDP vs. GDP • Real GDP is equal to prices in the base year x current quantity of goods produced. • Real GDP = Prices in the base year x Current Quantity of Goods Produced • Cross multiplie © EMC Publishing, LLC

Exhibit 11 -7 from the Student Text © EMC Publishing, LLC

11 Section 4 Measuring Price Changes and the Unemployment Rate © EMC Publishing, LLC

Calculating the Change in a Single Price • When a good increases in price from one year to the next, it is easy to calculate the percentage of change in price. • For example, if a car increased in price from $20, 000 in 2012 to $21, 500 in 2013, the percentage change in price was 7. 5 percent. © EMC Publishing, LLC

The Consumer Price Index • A price index is a measure of the price level, or the average level of prices. • The most widely used price index is the consumer price index (CPI). • Urban family of 4 • What they need to survive • Bread Basket • COMPARE OVER TIME, REGIONAL, INTERNATIONALLY © EMC Publishing, LLC

Determining the Quantity of Goods and Services and the Price Level • AGGREGATE DEMAND • SHORT RUN AGGREGATE SUPPLY • LONG RUN AGGREGATE SUPPLY © EMC Publishing, LLC

Who Are the Unemployed? • Labor Force – Employed = Unemployed © EMC Publishing,

Exhibit 11 -10 from the Student Text © EMC Publishing, LLC

The Unemployment and Employment Rates • The unemployment rate is the percentage of the civilian labor force that is unemployed. It is equal to the number of unemployed persons divided by the civilian labor force. © EMC Publishing, LLC

The Unemployment and Employment Rates (cont. ) • The employment rate is the percentage of the noninstitutional adult civilian population that is employed. It is equal to the number of employed persons divided by the non-institutional adult civilian population. © EMC Publishing, LLC