GDP UNEMPLOYMENT AND INFLATION GROSS DOMESTIC PRODUCT GDP

GDP, UNEMPLOYMENT AND INFLATION

GROSS DOMESTIC PRODUCT (GDP) • THE TOTAL MARKET VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED IN A GIVEN YEAR • INCLUDES DOMESTICALLY SUPPLIED AND FOREIGN SUPPLIED RESOURCES EMPLOYED WITHIN THE COUNTRY • EX - MARKET VALUE OF FORDS PRODUCED IN MICHIGAN OR THE HONDAS PRODUCED BY A JAPANESE-OWNED FACTORY IN OH

GDP CALCULATION • ADD UP ALL OF THE SPENDING ON FINAL GOODS AND SERVICES THROUGHOUT THE YEAR • GDP = PERSONAL CONSUMPTION EXPENDITURES + GROSS PRIVATE DOMESTIC INVESTMENT + GOVERNMENT PURCHASES + NET EXPORTS • GDP = C + I + G + X N

DISPOSABLE INCOME • PERSONAL INCOME MINUS TAXES (STATE, LOCAL, FEDERAL INCOME TAX, PROPERTY TAX, AND INHERITANCE TAX) --- SAVE OR SPEND WHAT’S LEFT

CHANGE IN PRICES • INFLATION - A RISE IN THE GENERAL LEVEL OF PRICES IN AN ECONOMY • DEFLATION - A DECLINE IN THE ECONOMY’S PRICE LEVEL

NOMINAL GDP • THE GDP MEASURED USING THE PRICE OF THE GOODS PURCHASED • = THE SUM OF: # OF UNITS SOLD X PRICE • NOT ADJUSTED FOR INFLATION

REAL GDP • ADJUSTED FOR INFLATION • INFLATED (WHEN PRICES FALL) OR DEFLATED (WHEN PRICES RISE) TO SHOW CHANGES IN PRICE LEVEL • EX- A HAMBURGER IN 1970 SOLD FOR $. 50 NOW MAY SELL FOR $4. 00 - THIS IS THE SAME AMOUNT OF OUTPUT AT A HIGHER $$ (DEFLATE THIS TO COMPARE WITH 1970)

BUSINESS CYCLE PEAK Expansion/ RECOVERY/ Expansion/ Recovery/ Boom RECESSION TROUGH DEPRESSION

WHO IS UNEMPLOYED? • MUST BE AT LEAST 16 YEARS OLD • MUST BE ACTIVELY LOOKING FOR WORK • CANNOT BE INSTITUTIONALIZED

TYPES OF UNEMPLOYMENT • 1. FRICTIONAL UNEMPLOYMENT • UNEMPLOYMENT WHICH OCCURS FROM PEOPLE MOVING BETWEEN JOBS, CAREERS, OR LOCATIONS

2. STRUCTURAL UNEMPLOYMENT • MISMATCH OF WORKERS AND JOB OPENINGS • UNEMPLOYED PEOPLE LACK THE SKILLS OR EDUCATION, OR GEOGRAPHICALLY ARE MISPLACED EX - JOBS MOVING FROM THE RUST BELT TO THE SUNBELT

3. CYCLICAL UNEMPLOYMENT • OCCURS FROM CHANGES IN THEBUSINESS CYCLES (RECESSION, DEPRESSION) • LAY-OFFS DUE TO A DECREASE IN DEMAND FOR GOODS/SERVICES

4. SEASONAL UNEMPLOYMENT • CHANGE IN HIRING PATTERNS DUE TO THE TIME OF YEAR • EX - SKI INSTRUCTORS, LIFEGUARDS, LANDSCAPERS • HTTP: //WWW. YOUTUBE. COM/WATCH? VXS = XSUJ 7 K X -CH 0

REAL INCOME • A MEASURE OF THE AMOUNT OF GOODS AND SERVICES NOMINAL INCOME CAN BUY • THE PURCHASING POWER OF NOMINAL INCOME • INCOME ADJUSTED FOR INFLATION • REAL INCOME = NOMINAL INCOME/PRICE INDEX (IN HUNDREDTHS)

REAL INCOME CONTD. • % CHANGE IN REAL INCOME NOMINAL INCOME = % CHANGE IN - % CHANGE IN PRICE LEVEL • EX - PRICE LEVEL RISES BY 6%. IF BILL’S NOMINAL INCOME GOES UP BY 6%, REAL INCOME IS UNCHANGED. IF NOMINAL INCOME GOES UP BY 10%, REAL INCOME WILL GO UP BY 4% ETC.