Module 10

Three basic economic goals:

1. Sustained long run economic growth over time.

Measured by: GDP - Gross Domestic Product

A measure of the overall value of goods and services produced.

The dollar value of all goods and services that are produced in US in one year. They must be made in the USA.

Final assembly determines this.

Nominal GDP
Using the current dollar value. i.e. with inflation.

Real GDP

Calculate using a set dollar value. i.e. without inflation.

Why Check GDP?

Compare our growth.

are our policies working

GDP is made up of 4 components:

C: Consumer spending accounts for ~70% of GDP, accumulation of all consumer spending.

I: Investment spending = spending by firms and companies on capital goods.

G: Government spending on goods and services.

Only when the government gets something in return.

Xn: Net exports. Difference between our imports and exports.

Net import = negative number.

Net export = positive number.

 

2. Low unemployment.

Full employment: When the unemployment rate ~4%.

 

Below 4% can reduce GDP growth (as you need a work force pool to pull from).

 

Frictional and structural will always exist in an economy.

Cyclical unemployment will only occur in a recession.

Thus, full employment occurs when we do not have cyclical unemployment.

Full employment = NRU, Natural rate of unemployment.

 

3. Keep prices stable --- keep inflation under control.

Inflation: When prices on average increases.

Target: 2-3% per year.

 

National income and product accounts/national accounts

Keeps track of the flows of money amount different sectors of the economy.