- It represents the flow of money, goods, and services in an economy.
- Factor Market (Resource)- (FOP), we sell our resources to businesses
- Product Market (Goods)- where goods and services ore bought and sold
- Household- person or group that shares an income
- Firm- organization that produces goods or services for sale
GDP
- Gross Domestic Product; the total value of all final goods and services produces within a countries borders within a given year
- Included:
- final goods and services
- income earned
- interest payments on corporate bonds
- current production of final goods and services
- unsold output (business inventories)
- Excluded:
- intermediate goods
- transfer payments (public/private)
- Ex: scholarship, SS
- purchases of stocks and bonds (financial transactions)
- used or secondhand sales
- non-market transactions
- ex:
- illegal drugs, prostitution
- baby sitting
- own housework or repairs
- growing own products for person consumption
GNP
- Gross National Product; total value of all final goods and services produces be Americans within a given year
Calculations
- GDP:
- Expenditure Approach: C + Ig + G + Xn
- C- personal consumption
- Ig- Gross private domestic investment
- G- government spending
- Xn- Net Exports
- Income Approach: W + R + I + P + Statistical Adjustments
- F.O.P
- W- wages, i.e salaries, compensation of employees
- R- rent, rental income
- I- interest income
- P- payments. Proprietors income
- Budget Deficit
- Total amount that the gov. borrows within a year (total gov. spending exceed tax and fee revenue)
- transfer payments + gov. purchases of goods and services - Gov. tax and fee collection
- Trade
- Exports - imports
- National Income
- Approach #1:
- Compensation of employees + proprietors income + interests income + rental income + corporate income
- Approach # 2:
- GDP - Indirect business taxes - depreciation - net foreign factor
- Disposable Personal Income
- national income - Household taxes + Gov. Transfer Payments
- Net Domestic Product
- GDP - depreciation (consumption of fixed income)
- Net National Product
- GNP - depreciation
- GNP
- GDP + Net Foreign Factor Payment
Nominal GDP
- The value of output produces in current prices (can increase year to year if either output or price increase
- Inflation
- P * Q
Real GDP
- Value of output produced in constant or base year prices
- can only increase if output increases
- Economic Growth
- Original Price * Q
Consumer Price Index
- measures the cost of the market basket of goods of a typical urban American family
- (Cost of market basket in a given year)/(cost of market basket in a base year) * 100
- Real GDP is adjusted for inflation
Deflation - fall of the price level
Rate of Inflation
- (CPI2 - CPI1)/CPI1 * 100
Deflator- NGDP/RGDP * 100
Types of Inflation
- Cost-push inflation - higher production costs which increase prices, usually result of a supply shock (push cost on you)
- Demand-pull inflation - too many dollars chasing too few goods; shortage driving up prices, overheated economy w/ excessive spending w/ same amount of goods
- Political Politics - depression/ recession
How Inflation Hurts/Helps
- Hurts
- lenders- b/c they loan $ at a fixed rate
- people with a fixed income (SS or transfer payments)(elderly)
- people who work for a fixed wage
- Helps
- debtors
- business where price of the product increases faster than the price of resources
Unemployment
- % of people w/o jobs
Labor force- employed + unemployed
Not in the labor force- 16 or younger; military personel; mentally insane; jail mates; stay at home mom/dads; full time students; retires; discouraged 16+ years olds who have searched for a job for 2 weeks
How To Calculate Unemployment Rate
- (# of unemployed)/(total labor force) * 100
4 Types of Unemployment
- Seasonal- lifeguard/ Santa worker, etc.
- Frictional- between jobs, quit before you get the other jobs
- Structural- lack of skill/declining industry
- Cynical- bad for society and individuals (you have a recession)
Full Employment - occurs when there is no cynical unemployment present in the economy
Okun's Law - for every one % of unemployment above the NRU occurs a 2% decline in real GDP
Your blog is well organized and thorough. You may want to add that the base year GDP deflator is always equal to 100. Then for years after base year, the GDP deflator is greater than 100. And finally for years before the base year, the GDP deflator is less than 100.
ReplyDeleteEverything on your blog is well-organized (bolded, indented, etc.). Other than what David commented above, you should also mention that GDP deflator can also be used to find the inflation rate.
ReplyDeleteYour notes were very organized and easy to understand, but you might want to add that for budget if the number is positive then its deficit and if it is negative then it is a surplus. Also, for trade if it is a positive number then it is a surplus and if it is a negative number then it is a deficit.
ReplyDeleteIt is very nice how you have written out the equations, helped me clear out some of my notes I had missing. Although, I have some problems distinguishing the difference between calculating Real and Nominal GDP, any advice on how to better understand and remember them?
ReplyDeleteEverything was clear and concise in your notes. The visual aid really added to the post and helped comprehension. The vertical bullet points in the middle of it was a little difficult to read, you should try and get that fixed
ReplyDelete