Warm-up: Get a yellow text

1. What does GDP stand for?

2. How do we calculate GDP?

3. What do we use to measure inflation?

4. How do we measure unemployment?

Begin Unit 3 Macroeconomics

SSEMA1

b. Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation, stagflation, and aggregate supply and aggregate demand.

c. Explain how economic growth, inflation, and unemployment are calculated.

N.B. #22- Business Cycle and Economic Indicators

You should be able to answer the following at the end of this lesson:

1. What is GDP, inflation, and unemployment? How is each calculated?

2. What are the characteristics of the four types of unemployment?

The Business Cycle

• The ups and downs of the economic activity

• The good times and bad times

• P. 310

The Business Cycle

4 phases1. Expansion- increasing

GDP and growth

2. Peak- the top of the expansionary period- lowest unemployment

3. Contraction- decreasing GDP-increasing unemployment

4. Trough- “the bottom” of the contraction

The Business Cycle

PeakPeak

ExpansionExpansion

TroughTrough

contractioncontraction

Economic Indicators

1. GDP

2. Inflation

3. Unemployment

MEASURES OF ECONOMIC PERFORMANCE

• GROSS DOMESTIC PRODUCT (GDP): total amount (and value) of goods that a country makes

• Real GDP – adjusted for inflation• Per capita GDP – (per person)

How it’s measured…

GDP = sum of Consumption (consumer spending), Investment (business spending), Government Spending and Net Exports (exports – imports)

C + I + G + (ex-im)

GDP

a) Consumer spending –what people decide to spend their money on. (movie tickets, TV, go to the mall and shop)

b) Investments-spending by businesses

c) National Government Spending

• National Defense• Social Security: payments to aged, disabled,

and retired persons• National Debt• Medicare: health care program available to all

senior citizens regardless of income• Health: medicaid – medical insurance

program for low income persons

National Government Spending

d) Net Export

• Exports – Imports– Export: goods that are sent out of the

country (results in money coming into the country)

– Imports: goods that are coming in from outside sources (other countries) – results in money being sent out by home country

Gross Domestic Product

• Per Capita GDP– GDP of a Country / Population

Inflation

• Rise in the prices of goods and services in an economy over a period of time– Results in less purchasing power

• How is it calculated: Consumer Price Index (CPI)CPI is a market basket of goods and

services that are compared every year

CPI (Consumer Price Index)

• Prices of market basket items are compared each month-has categories!

• Food and drinks-cereals, coffee, milk, restaurant meals

• Housing-rent, homeowner’s costs, fuel oil

• Transportation-airfares, new/used cars

CPI continued

• Medical Care-prescription medicines, eye care, physician’s services

• Entertainment-newspapers, toys, musical instruments

• Education-tuition, postage, telephone services, computers

• Other goods and services-haircuts, cosmetics, bank fees

Inflation Calculator

http://data.bls.gov/cgi-bin/cpicalc.pl

Types of Unemployment

Frictional Unemployment

• People are temporarily unemployed

• Usually when people are moving in between jobs (ex. graduates or people changing jobs)

• There will always be some frictional unemployment

Structural Unemployment

• Unemployment caused when your talents do not meet the requirements for the job– Not enough jobs to support all the people

who are trained in a certain field– Technology causes less demand for human

labor– Another example: a decline in coal mines

leads to less demand for coal miners

Cyclical Unemployment

• Due to the economic climate and state of the job market

• Rises and falls with the economy– During times of economic growth, more

jobs are available. Conversely, during a recession, less jobs are available.

Seasonal Unemployment

• Unemployment due to the time of season

• For example, during Christmas, there are more retail job opportunities due to the increase in shopping

• Another example, a resort town along the coast will have fewer jobs available during the colder months

Question 1What type of unemployment?

• Construction workers are laid off for the winter, but plan to return to work when the weather is better.

Question 2What type of unemployment?

• Workers are laid off at a Pog factory. A downturn in the economy has lowered demand for luxury items.

Question 3What type of unemployment?

• The United States has lost manufacturing jobs as a result of a change to a service-oriented economy.

Question 4What type of unemployment?

• A fast-food worker graduates from college and quits his job to look for a better career.

Question 5

True or False?

Unemployment in the U. S. has recently been higher than 8 percent.

Quiz!!1. In your own words, describe what

GDP attempts to measure.

2. Explain the formula for calculating GDP.