Economic Growth and Measurement

Economic Goals Economic Freedom Economic Stability Economic Security Economic Equity Economic Efficiency Economic Growth Full-Employment

Economic Freedom The freedom to choose careers, make

business decisions.

Economic Stability Price stability and stable growth are

critical. Fiscal and Monetary Policies are used to achieve this goal.

Economic Security Protection from adverse economic

events such as layoffs and illnesses.

Economic Equity Equality of opportunity and a fair

distribution of wealth.

Economic Efficiency

The productive use of scarce resources.

Economic Growth Sustained period during which a

nation’s total output of goods and services increases.

Full Employment

Full employment is the lowest possible unemployment rate, with the economy growing and all factors of production being used as efficiently as possible.

Major Economic Indicators Gross Domestic Product (GDP)

Unemployment

Consumer Price Index (CPI)

Gross Domestic Product Gross Domestic Product, or GDP, is the

total value of all goods and services produced for final use during a given year.

It is considered the most comprehensive measure of a country’s economic well-being.

The target rate for GDP is 3 – 5% per year. The formula for GDP is C + I + G + (X – M)

C + I + G + (X – M) = GDP Consumption – Consumer Sector

Gross Investment – Investment Sector (Businesses)

Government – Government Sector

Net Exports – Foreign Sector

GDP GDP v. GNP

Per Capita GDP

Real v. Current GDP

What isn’t included in GDP?

Environmental Impact

Unemployment The labor force is the sum of employed and unemployed

persons. To be considered unemployed, the person has to be actively looking for work.

Unemployment Rate = Number Unemployed/Labor Force

Economists consider the labor force to be fully employed when the unemployment rate is less than 4 – 6%.

Underemployment is a growing problem.

Current statistics can be found at www.bls.gov.

Unemployment There are five categories of

unemployment. Seasonal unemployment is

unemployment resulting from changes in the weather or changes in the demand for certain products or services.

Technological unemployment is unemployment caused by automation that reduces the need for workers.

Structural unemployment is unemployment that occurs when a fundamental change in the operation of the economy reduces the demand for workers and their skills. It is the most serious type of unemployment.

Cyclical unemployment is unemployment directly related to swings in the business cycle.

Frictional unemployment is unemployment caused by workers who are between jobs.

Consumer Price Index The CPI should be 3% or less. There are two types of inflation. Cost-Push Inflation Demand-Pull Inflation

www.bea.gov

The Business Cycle The Business Cycle refers to the systematic

changes in real GDP marked by alternating periods of expansion and contraction.

There are four stages of the business cycle: expansion, peak, contraction, trough.

A recession is when there are two quarters of a contraction in real GDP.

A depression is a severe, prolonged recession. For example, a 25% unemployment rate, instead of an 11% unemployment rate.

The Business Cycle

Business Cycles 1970 - 2008

A final thought….