Unit2 Macro Cram GDP Unemployment Inflation Measuring Economic

Unit-2 Macro Cram GDP, Unemployment, Inflation

Measuring Economic Growth: Calculating GDP: Business Investment, Consumer/Business Construction, & Change in Inventories. (new houses count as investment!) GDP = C + I + G + (X-M) What Counts? Only NEW & FINAL goods Domestic Products (made in USA) What does NOT Count? Used goods International products Financial transactions Non-market transactions Gov’t Transfer Payments (i. e. welfare, social security, unemployment) GDP does not measure: mix of goods, quality of products, quality of life, leisure time

4 -Types of Unemployment • Structural – Skills do not match demand for labor • Cyclical – too low a level of GDP (recession) • Frictional – Temporarily between Jobs • Seasonal – Based on time of year Allows for some Natural Rate of Employment (also called full employment) About 4. 5% in USA Frictional & Structural Natural Rate is where: Cyclical unemployment is zero Seasonal “factored out”

2000 2006 bb le Bu ing Ho us ion s eces at R 1990 ’s Gre se ap Coll ology PEAK com Techn PEAK Dot. Boom Business Cycle 2016 2001 TROUGH 2008 -09 TROUGH ?

Measuring Inflation • GDP deflator – uses price of all goods/services included in GDP – Very Broad index but only has domestically produced goods • CPI index – uses prices of a consumer market basket of goods & services – Very narrow index but has international goods What should be in basket? Substitution Bias New goods Quality changes Inflation Index: 1990 100 2000 115 Base year always 100 Use to calculate inflation rates COLA = cost of living adjustment

Practice Test Unit #2 • Questions #1 - #20 .