TOPIC 7: ECONOMIC PERFORMANCE & CHALLENGES

Economic measures such as GDP & GNP measure the value of goods and services produced by Americans. But as Robert F. Kennedy argued, not all goods and services indicate a better quality of life for Americans.

“Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product ... counts air pollution and cigarette

advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic

sprawl.”—Robert F. Kennedy, University of Kansas,

March 18, 1968What is Kennedy trying to argue here?

Answer in at least 3 full sentences.

7.1 Gross Domestic Product

Economists use a system called national income accounting to monitor the U.S. economy They collect stats on production,

income, investment , & savings Department of Commerce presents

data as National Income & Product Accounts (NIPA)

Government uses this to decide economic policies

The most important NIPA is GDP: the dollar value of all final g&s produced within a country’s borders in a given year

Dollar value: total cash of the sales of all g&s produced in a country in a year

Final g&s: products sold to consumers

Produced within a country’s borders: US gdp includes Japanese cars made in Ohio, but not an American automaker’s car made in Brazil

In a given year: when it was made

GDP per capita = GDP/population

GNP

Gross national product The annual income earned by a

nation’s firms and citizens It is a measure of the market value of

all g&s produced by Americans in one year

7.2 Business Cycle

Sometimes you don’t have to read the newspaper to tell how the economy is doing. Signs are everywhere.

Ex. Help wanted signs are in front of stores and factories all around, how is the economy doing?

How about going out of business, foreclosure?

7.2 Business Cycle

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

7.3 Economic Growth

What was your parents life like? Grandparents? Early ancestors?

7.3 Economic Growth

Economic growth allows successive generations to have more and better g&s than their parents had Improves the quality of life

Real GDP should grow as fast as the population (track this using real GDP per capita)

7.3 Economic Growth

7.4 Unemployment

Different types: Frictional unemployment: occurs when people

take time to find a job (change jobs, laid off, take time to find the right job)

Structural unemployment: occurs when workers’ skills do not match those needed for the jobs that are now available (when the structure of an economy changes, so do the skills workers’ need)

Seasonal unemployment: occurs when industries slow or shut down for a season

Cyclical unemployment: rises during economic downturns & falls when economy improves

Unemployment always exists, even in a booming economy.

7.4 Unemployment

Zero unemployment is not an achievable goal in a market economy. Economists agree that an economy is working properly if the

unemployment rate is around 4-6 %.

Full employment

7.4 Unemployment

Unemployment 1. Is your retired grandfather unemployed?  2. Is a woman that stays home with her

kids unemployed?  3. A thief serving time in prison lost his job

when he was convicted. Is he unemployed? 4. An aunt serving in the Armed Forces is

posted in Iraq. Is she employed?  5. Is a full-time college student

unemployed? 6. Are you unemployed?

7.5 Inflation & Deflation Inflation: a

general increase in prices across an economy

Inflation shrinks the purchasing power of your money

In 1965, your grandma bought this house for $13,234, she sells it in 2015 for $100,000!

But… what kind of house can you buy with that money today?

7.5 Inflation & Deflation If you are currently under the age of

30 (…we are) then you’ve experienced fairly low inflation rates

Date

US Inflation

Rate Value

Sept 01, 2015 -0.04%

Jan 1, 2015 -0.09%

Jan 1, 2014 1.58%

Jan 1, 2013 1.59%

7.5 Inflation & Deflation

But, inflation has been creeping along at low rates Lucky streak?

Deflation: sustained drop in the price level

Why is it happening??? Recession? Slow growth? What good’s price is low?

Poverty & Income Distribution Poverty threshold: income level below what is sufficient to support a family or household

2013: poverty threshold for a single parent under 65 with one child = $15,510 Family of 4 with 2 children = $23,550

Income DistributionHow the nation’s total income is distributed among its population