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CALCULATING GDP

EXPENDITURE APPROACH (GDP)

= personal consumption expenditures + gross private domestic investment + government spending + net exports (exports - imports)

INCOME APPROACH

= Labor income + Rents + Interest + Profits + Proprietors income + Statistical adjustments

BUDGET SURPLUS

= Gov purchases on goods and services + Gov payments - Gov tax and fees

If number is positive its a Budget surplus 

If number is negative its a Budget deficit 

TRADE SURPLUS

= Exports - Imports

If number is positive its a Trade surplus 

If number is negative its a Trade deficit 

NATIONAL INCOME

= compensation of employees + rents + interest + corporate profits + proprietors income

or

=GDP  - Indirect business taxes - Depreciation - Net forces factor income 

DISPOSABLE INCOME

= National income - Personal Taxes + Gov transfer payments

NET DOMESTIC PRODUCT

= GDP - Depreciation

NET NATIONAL PRODUCT

= GNP - Depreciation

GNP

=  GDP + Net foreign factor payment

CIRCULAR FLOW

Product Market- firms sell goods and service to produce to the households

Factor market- place where households sell their resources and businesses buy those resources

Firms- organization that produces goods and services for sale

House hold- person or group of people that share their income

- sell factors of production to business

      

UNEMPLOYMENT

-the failure to use availiable resources particularly labor to produce desired goods & services

In labor force

-above 16 Y.O.A

-able and willing to work

-employed + unemployed

Not found in labor force

-military

-students

-retired

-dissabled

-homemakers

-mental institution 

-in jail or prison

-those not looking for a job

Unemployment rate

-Ideal: 4-5%-full employment / natural rate of unemployment 

Calculate

# of unemployed / (# of employed + unemplyed) X 100

Four types of unemployment 

Frictional

-those who are searching for a job

-temporary unemployed/ in between jobs

-have transferable skills

-college and highschool graduates

-possibly layed off from previous job

Structual

-changes in the structure in the labor force that make some skills obsolete these workers do not have transferable skills

-learn new skills in order to get a job

Seasonal

-due to the time of year and the nature of  the job

-school bus drivers

-life guards

-santa clause/ easter bunny impersonators

-construction workers

Cyclical

-results from economic downturns such as a recession as demand for goods and service falls, demand for labor falls, and workers are layed off

Frictional and structural unemployment = NrU

Full employment means there are no cyclical unemployment 

GDP GAP

-ammount by which actual GDP fall short against potentiol GDP

Okun law 

-for every one percent in which actual unemployment rate exceeds nru a gdp gap of about 2% occurs

Ex: in 2012 the unemployment rate in mexico was 7.4% the nru is 6% 

7.4 - 6 X 2

Actual unemployment - nru X 2

Rule of 70

-it is used to determine how many years it takes for a value to double given a particular annual growth rate

Ex: if you put 20,000 in the bank and it earns a yearly interest of 7%, how many years would it take for your income to double?

70 / annual interest rate

GROSS DOMESTIC PRODUCTS

- the market value of all final goods and services produced within a nation in a given year 

Not included-

- intermediate goods (somthing that needs further process) 

- used or secondhand goods (already bought)

- Purely financial transactions (stocks and bonds)

- Illegal activites (ola-drugs)

- Unreported buisness activites (tips)

- Non market activites (volunteering, babystiing, working on own property)

- Transfered payments (scholarships, wellfare payments, social security)

Included-

- (65%) "C" personal consumption expenditures (tip)

- (17%) "IG" gross private domestic investment

-

.factory equipment maintenance 

.new factory equipment

.new constuction of housing

.un-sold inventory of products built in a year

-(20%) "G" government spending

-(-2%) "Xn" net exports (exports-imports)

GNP

Gross national product -total market value of all final good and services, by citizens of that country on its land or foreign land)

Nominal GDP

-value of output produced in current year prices

Real GDP

-The value of output produced in constant base year prices

-adjusted for inflation

If wanted to measure economic growth, use "real GDP"

If wanted to measure in increase in prices (inflation), use "nominal gdp"

Nominal GDP can increase from year to year if either price or quantity increases

Real GDP can increase from year to year only if output increases

Price X Quantity

GDP deflator

- price index used to adjust from nominal to real GDP

-in the base year GDP deflator always equal 100

-for years after the base year GDP deflator is greater than 100

-for years befor the base year GDP is less than 100

Nominal gdp / Real gdp X (100)

Consumer Price Index

- most commonly used for inflation

-measures the cost of market basket of goods of a typical urban american family

Cost of a market basket of goods in a given year / over a cost of a market basket of goods of a base year X (100)

Inflation rate

Price index in yr 2 - price index in yr 1 / price index in year 1 X (100)

N-O/O(100)

Nominal interest rate

-precentage increase in money, the borrower must pay the lender for a loan

-not adjusted for inflation

Real interest rate

-precentage increase in purchasing power, the borrower must play the lender for a loan

-adjusted for inflation

-(nominal interest rate - inflation)

-unanticipated inflation (not expected)

Anticipated inflation

-fisher effect

*nominal interest rate

(Expected interest rate + Inflation premium)

Inflation

Hurt

-savers

-lenders/creditors

-people who are on a fixed income (elderly, S.S, welfare, Medicade)

Helped

-debtors

C.O.L.A (cost of living adjustments)

-automatic wage increase when inflation occurs