Chapter 6 02 03 2014 19 31 00 Gross domestic product GDP total value of all final goods and services produced for the market place during a given period within the nation s borders Total value adds up the dollar value of all goods and services regardless of its units hours pounds etc o Good allows us to add up apples and oranges assures that a good that uses more resources counts more in GDP than something that does not ex computer chip vs tortilla chip if price increases so does GDP even though we aren t producing more o bad of all final o intermediate goods goods used up in the process of producing something else example lumber mill paper mill office supply manufacturer etc o final good good sold to its final user example the actual notebook goods and services o good something physical can hold it in your hands o service not physical ex medical check up for the market place goods with the intention of being sold during a given period only produced and sold during that period Within the nation s borders include output produced by foreigners on US ground but exclude output produced by Americans in other NOT USED GOODS countries GDP deflator 100 x nominal GDP real GDP Tracking and reporting GDP Annualization o GDP is a flow variable it measures as a rate of production next 70 Government measures GDP as an annual rate Real vs nominal o Real GDP adjusted for the dollar s changing value o Nominal GDP no adjustment for the dollar s changing value economists tend to focus more on the real GDP because it tells us more about the economy What s happening to total production Growth rate how much growth occurs from one quarter to the The expenditure approach to GDP Consumption goods and services C purchased by households o Imported consumption goods and components o Imputed items Two items are included in consumption spending even though they are not actually purchased Total value of food produced on farms and consumed by their families themselves Total value of housing services provided by owner occupied homes Government estimates how much the crops could have sold for houses could have been rented for Private investment goods and services I purchased by businesses o Business purchase of plant equipment and software Not used up during production can last many years o Change in inventory Inventory what is produced but not sold Still counted because even if it s not sold it goes into the firms inventory If 100 billion worth of automobiles is produced but 120 billion is sold we subtract 20 billion because it was counted in previous GDP o New home construction benefits will provide for many years in the future o Private investment and the capital stock stock agencies etc Private investment spending adds to the nation s capital Government goods and services G purchased by government o Paper in government offices salaries of military personnel o Transfer payments represent money redistributed from one group of citizens taxpayers to another the poor the unemployed the elderly While transfers are included in government budgets as outlays they are not included in the government purchases component of GDP Net exports NX purchased by foreigners o Total exports total imports GDP C I G NX Other approaches to GDP the economy goods The value added approach sum of the values added by all firms in o Adding up the firm s contribution as it is produced o Revenue it receives for its output cost of all intermediate Example paper mill buys 1 00 worth of wood chips turns wood chips into paper which sells for 1 50 1 50 1 00 50 50 is the value added do this for each step add them up at the end and should end up with final cost The factor payments approach adding up all the income earned by all households in an economy o Factor payments value added what is paid to owners of resources land labor capital and entrepreneurship Wages Rent Interest Profit factor payments o Total output of the economy GDP total income earned in the economy How GDP is used In the short run GDP can alert us of an oncoming recession or expansion so that we can take action Can measure economic growth in the long run o GDP must grow faster in order to make output per capita rise standard of living o Consumer goods razor blades that make for a better shave o Medical services o Retail services faster check out Problems with GDP Quality changes The underground economy o Drugs gambling etc Nonmarket production o Goods and services that are produced but not sold in the marketplace Housecleaning lawn mowing child rearing that people do themselves instead of hiring others Other aspects of well being Types of Unemployment Frictional unemployment people who are just entering the work force for the first time entering after a break or in between jobs Seasonal unemployment related to changes in weather tourist patterns or other seasonal factors o Seasonal adjustment process that removes any change during that given month Structural unemployment caused by structural change in the economy like new technology being replaced with old change in Cyclical unemployment caused by the business cycle during a location etc recession o Full employment 0 cyclical unemployment but even at full employment unemployment rate is above 0 because of frictional seasonal and structural unemployment Unemployment rate Unemployed labor force unemployed unemployed employed Problems in Measuring Unemployment Involuntary part time workers o One hour or more for pay per week is considered employed Discouraged workers 02 03 2014 19 31 00 02 03 2014 19 31 00
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