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Measuring Economic Performance

Measuring Economic Performance. Part 1. Gross Domestic Product (GDP). GDP is the primary measurement of economic performance. It is the dollar value of all final goods and services produced within a country’s borders in a given year.

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Measuring Economic Performance

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  1. Measuring Economic Performance Part 1

  2. Gross Domestic Product (GDP) • GDP is the primary measurement of economic performance. • It is the dollar value of all final goods and services produced within a country’s borders in a given year. • The GDP of the United States is $13.13 trillion dollars (2007).

  3. Calculation of GDP • The most common method used to calculate GDP is called the expenditures method. • This method adds up the amount of money spent on consumer purchases, business purchases, government purchases, and net exports (Exports minus Imports).

  4. GDP Limitations • GDP is probably the best measurement of economic performance. • However, there are four primary limitations to GDP. • GDP measurements do not include non-market activities, underground economic activities, negative externalities, and the overall quality of life.

  5. Inflation • This is a rise in the general level of prices. • There are two primary theories about what causes inflation. • These are the demand-pull and cost-push theories of inflation.

  6. Demand-Pull Inflation • This type of inflation is caused by an increase in consumer demand. • Consumer demand literally pulls the price up. • “Too much money chasing too few goods” is an old saying that explains demand-pull inflation. • This means that the supply of goods can’t keep up with the demand for goods. Consumers will compete with one another for the goods, hence, bidding the prices up.

  7. Cost-Push Inflation • This type of inflation is caused by an increase in input prices. • This means that it costs more for manufactures to produce a good or provide a service. • This increase in cost is then passed on to consumers. • An increase in the price of oil will cause an increase in the price of many products. This is because oil is used in the production of many products including gasoline, chemicals, plastics, and pesticides.

  8. Consumer Price Index (CPI) • This information on inflation is collected and reported on monthly by the Bureau of Labor Statistics. • The index is calculated by following the changes in prices of a market basket of commonly purchased goods and services. • The items in the market basket are based upon purchases from the urban population (87% of the U.S. population lives in urban areas). • The most recent CPI data shows a 4.6% increase in prices from this time last year.

  9. Unemployment • This is the state of an individual actively looking for a paying job but not being able to find one. • There are four basic types of unemployment. • These include: structural, frictional, seasonal, and cyclical.

  10. Structural Unemployment • This type of unemployment is caused by the job skills that you possess not matching up with the jobs that are available. • A good example of structural unemployment is when technology advances rendering some job skills obsolete. • A person that specialized in repairing typewriters in the 1960’s and 1970’s would have found steady employment. This person would not be able to find a job today with that skill set.

  11. Frictional Unemployment • This type of unemployment is caused when someone is between jobs. • When an individual decides to leave his or her job, they are frictionally unemployed until they find another one.

  12. Seasonal Unemployment • This type of unemployment is caused by a change in the seasons. • Certain jobs are done only in certain times of the year. During the other times of the year, these individuals are laid off until the next season begins. • An example of this is someone who works at an amusement park while it is open and then is laid off until the park re-opens.

  13. Cyclical Unemployment • This is the worst type of unemployment. • This is unemployment that is caused by a downturn in economic activity. • It is called cyclical unemployment because it occurs during the contractionary and trough phases of the business cycle.

  14. U.S. Unemployment Rate • The national unemployment rate for March was 5.1% • The unemployment rate will never be zero because you will always have people with skills that become obsolete, they will be between jobs, or they have a job that is seasonal.

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