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GDP Review

GDP Review. Gross Domestic Product (GDP). The Gross Domestic Product is the dollar value of all final goods and services produced within a country’s borders in a given year. In order for a good to be included in a nation’s GDP, it must be made in that country.

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GDP Review

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  1. GDP Review

  2. Gross Domestic Product (GDP) • The Gross Domestic Product is the dollar value of all final goods and services produced within a country’s borders in a given year. • In order for a good to be included in a nation’s GDP, it must be made in that country. • It doesn’t matter if the factory is owned by a foreign company as long as the factory is located in the country where GDP will be calculated.

  3. GDP • Final goods and services-Products in the form sold to consumers • Intermediate Goods- used in the production of final goods E. Napp

  4. Real GDP • While nominal GDP is expressed in current prices, real GDP is adjusted for inflation. • Inflation means rising prices. The problem with GDP is it could appear to rise when in reality only prices rose. • In other words, one million in1970 dollars is not the same as one million in 2006 dollars. The 2006 dollars must be adjusted to 1970 dollars in order to effectively compare the two amounts.

  5. Durable and Nondurable Goods • The goods included in GDP are durable and nondurable goods. • Durable goods are goods that last for a relatively long time, such as refrigerators and cars. • Nondurable goods last for a short period of time like food and paperback books.

  6. The Effects of the Great Depression on Economists: • The Great Depression taught economists that they needed some way of tracking the nation’s economy. • By tracking the nation’s economy, economists could determine if the economy was in danger of a recession or a depression and could try to apply economic policies to prevent such hardships from occurring. • Severe economic downturn

  7. Expenditure Approach Economists estimate the amount spent on four categories of goods and services Consumer Goods and Services Business goods and services Government goods and services Net exports or imports of goods and services Add together all expenditures=GDP

  8. Income Approach • A more practical way of measuring GDP • Selling price equals income • All income earned in the economy will add up to the GDP

  9. A business cycle is a period of macroeconomic expansion followed by a period of contraction.

  10. The Four Phases of a Business Cycle • There are four phases in a business cycle: Expansion: a period of economic growth Peak: the height of the expansion Contraction: a period of economic decline Trough: the lowest point of the contraction

  11. Recessions and Depressions • Each phase of the business cycle is determined by monitoring Gross Domestic Product. • A contraction that lasts for at least six months is called a recession. • A particularly severe and long contraction is called a depression.

  12. Capital Deepening • One way to increase economic productivity is through capital deepening. • Capital deepening is the process of increasing the amount of capital per worker. • Better educated workers can produce more output per hour of work.

  13. Technological Progress • Another key source of economic growth is technological progress. • This is an increase in efficiency gained by producing more output. • Email replacing slower “snail mail” is an example of technological progress.

  14. Frictional Unemployment Occurs when people take time to find a job People might change jobs, or get laid off, or need time to find the right job In a large economy many people fill into this category

  15. Seasonal Unemployment Occurs when industries slow or shut down or make seasonal shifts in their production Economists expect to see seasonal unemployment throughout the year Policymakers do not take steps to prevent this kind of unemployment

  16. Structural Unemployment • Occurs when workers skills do not fit the jobs that are available • Five Causes: • New Technology • New Resources • Changes in consumer demand • Globalization • Lack of Education

  17. Cyclical Unemployment Occurs during downturns in the economy and changes during upturns Can severely strain the economy Underemployed- working in a job that a person is overqualified, or part time

  18. Demand Pull Theory- inflation occurs when demand for goods and services exceeds existing supplies • Cost Push Theory- inflation occurs when producers raise prices in order to meet increased prices costs • Inflation- is a general increase in prices

  19. Poverty Threshold-The level below which income is insufficient to support a family or household • Workfare- a program requiring work in exchange for assisstance

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