GDP GDP gross domestic product - total market value of all final goods and services produced within a country's borders with in each year. GNP gross national product - the sum of all total goods and services produced by residents of a country during a given year. Using foreigners. Intermediate goods- goods that require further processing before they are ready for final use. Ex: steering wheel, something that you use to make a product What’s not included in GDP? 1.) Used goods/ second hand goods- Trying to avoid double or multiple counting. Ex: whoever purchased that item once is official. So, if someone bought it again it can't be counted. 2.) Gifts or transfer payments- can be public or private. Ex: transferring funds from one institution/ individual to another. For private it would be scholarships for transfer it would be welfare or social security. 3.) Stocks and bonds- purely financial transactions 4.) Unreported business activity- tips,
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Unemployment Unemployment- failure to use available resources, particularly labor to produce desire goods and services. Population- number of people in a country Labor force- number of people in a country that are classified by either employed or unemployed People that are not in the labor force: Kids- full time student Military personnel Homemakers Institutionalised Retired people Incarcerated Full-time students (college) Discourage workers Employed- people 16 years of age or older that have a job, in order to be considered employed you must work at least 1 hour every 2 weeks to be considered employed. Unemployed- people who are 16 years of age or older that do not have a job, but have actively searched for one in the last 2 weeks. Unemployment rate- # of unemployed/ total labor force (unemployed+employed) Unemployment types: Frictional- temporarily unemployed or between jobs (individuals are qualified and have transferable skills). High school graduates an
Inflation Inflation - general rise in the price level new-old/old x 100 It reduces the purchasing power of money. Ex: (1982 gas cost .82 cents and 2018 3$) When inflation occurs, each dollar of income will buy fewer goods than before. 3 causes of inflation: 1.) The government prints too much money 2.) Demand- pull inflation (we have too many dollars chasing too few goods) Ex: favorite musician comes to town. Some would pay $ just to get to this concert. 3.) Cost- push inflation. Higher production cost increases prices. Ex: Hurricane Katrina. Some of the oil refinery were destroyed. Prices would rise for basic necessities. Unanticipated inflation- (unexpected) Hurt by inflation: Lenders- people who loan money at fixed rates People on a fixed income- elderly, retirement, social security Savers- saving account Helped by inflation: Borrowers- when we have to borrow money Flexible income- money can come from various sources. Business wher
Real vs Nominal GDP Nominal GDP - the value of output produced in current prices can increase from year to year if either output or price increase. (Both things change) (PxQ) Real GDP - value of output (quantity) produced in constant base year ( first year) prices that is adjusted for inflation. can increase from year to year only if output increases (PxQ) In the base year the current price is going to be equal to the base year price. Base year: Real GDP= Nominal GDP In years after the base year nominal GDP exceeds real GDP in years before the base year, real GDP exceeds nominal GDP. GDP deflator - price index that is used to adjust from nominal to real GDP in the base year the GDP will equal to 100 After the base year it will be greater than 100 before the base year it will be less than 100 Deflator = New-old/old x 100 GDP Deflator = nominal/real GDP x100 Inflation - general rise in the price level Inflation rate - new-old/old × 100 Cons
BUSINESS CYCLE The business cycle is represented by periods of growth and recession in the economy. It can be demonstrated in terms of long-term and short term growth. These periods of growth and recession are demonstrated using the country’s real gross domestic product (GDP) as its base. Real GDP is the measurement of overall output of the economy in real terms, meaning it has been adjusted for inflation . When the country’s economy is in a problem spot, then the GDP shrinks. When the country is at the level of full employment, then the GDP grows. The relationship between the business cycle and GDP growth is an element of modern capitalism. For an economy to be healthy, there will always be periods of growth and periods of recession. The severity of the growth and recession is a subject of real debate, especially in current politics. The trend of the business cycle and unemployment are closely related. During times of economic recession unemployment will increase and th
SUPPLY AND DEMAND Market equilibrium- is a market state where the supply in the market is equal to the demand in the market . The equilibrium price is the price of a good or service when the supply of it is equal to the demand for it in the market . More information about market equilibrium in the link below https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-equilibrium/market-equilibrium-tutorial/v/market-equilibrium Demand - quantities that people are willing and able to buy at various prices The law of Demand- states that there is an inverse relationship between price and quantity demanded *one thing that causes a change in quantity demanded is a change in price Factors that causes "change in Demand" Change in buyer's taste- this could range from a viral outbreak to something simple like buyer preference. Change in the number of buyers- this mainly pertains to the change of population in a given area. This
POWER OF MARKETS- EXCHANGE Now we will transition from the more mathematical points of economics to the more philosophical points of economics. These include more basic principles of economics as well as somethings people will do as far as the subject goes. Capitilism is when the market aligns incentives in such a way that individuals working for their own best interest trying to make better standing of living in society. Stores sell products that people want to buy, companies provide products stores want to sell. "Economy is the art of making the most of life" Luxury good- a good that we buy in increasing quantities as we grow richer Economists often argue that rich countries ought to pay poor countries to protect natural resources that have global value. It is bad to impose our own preferences on those who are less fortunate. Maximize utility, the more you waste the higher the disutility Balance work and leisure Life is about trade off and so is econ