homework : guided reading due friday

Homework: Guided Reading due Friday

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"But NBC, bless them, announced the official date for Jay Leno's departure. No mention of his official date of return, however." –David Letterman

"The White House has now put together a website for kids. It's a website to teach kids how to manage a budget responsibly. The website is called 'Irony.gov.'" –David Letterman

"Today President Obama asked Congress for $100 million to map the human brain. And believe me, if anybody needs a map to find their brain, it's Congress." –Jay Leno

"Yesterday President Obama shot baskets at the White House and made only two shots out of 22. Even Dick Cheney was like, 'That guy needs to learn how to shoot.'" –Jimmy Fallon

Measuring the Economy

Chapter 13

National Income Accounting• The measurement of the national

economy’s performance is called national income accounting.

• 5 major statistics measure the national economy:– gross domestic product– net domestic product– national income– personal income– disposable personal income.

National Income Accounting

Measuring GDP• The total dollar value of all final

goods produced in a country during a year.

• The GDP value is always expressed in dollars

• The GDP only accounts for final products so that parts are not double counted.

• Only new products are counted: used products are not because they are considered a transfer from one owner to another.


Measuring GDP• GDP is computed by adding products

purchased by consumers, by businesses, by the government, and net exports (the difference between exports and imports).

• Weaknesses– some of the figures used to

compute GDP are estimates– it omits some areas of the economy– it only measures quantity not

quality.


Net Domestic Product• Accounts for fact that some

production is only due to depreciation• NDP takes GDP and subtracts loss of

value due to depreciation• NDP is a better measure of

productivity because it accounts for depreciation.


Measurements of Income• National income (NI) is the total

earned by everyone in the economy.• NI is made up of wages and salaries,

income of self-employed people, rental income, corporate profits, and interest on savings and other investments.


Measurements of Income• Personal income (PI) is income

received before paying personal taxes.

• PI is NI minus transfer payments (assistance payments) and income that is not available to be spent.


Measurements of Income• Disposable personal income (DPI) is

income left to purchase goods or put in savings after paying taxes.


The Purchasing Power of Money• When inflation occurs, the prices of

goods and services rise, and the purchasing power of the dollar goes down.

• Purchasing power of a dollar is equal to the real goods and services the dollar can buy.

• Inflation can also be defined as the decline in the purchasing power of money.

• Faster the rate of inflation, greater the drop in purchasing power.

Correcting Statistics for Inflation

Dr. Evil and Inflation

Hyperinflation in Zimbabwe


The Purchasing Power of Money• Inflation must be taken into account

when calculating the GDP. Why?– Figures that result from inflation don’t reflect an

increase in production output. – Therefore, inflation gives the appearance that

production has increased, and can lead to incorrect economic policies.

• Deflation is a prolonged decline in the general price level.


Measures of Inflation• The consumer price index (CPI) is a

measure of the change in price of a specific group of products and services (a market basket) used by the average household.

• The producer price index (PPI) measures the average change in prices that companies charge the consumer (most of the producer prices are in mining, manufacturing, and agriculture)

• The PPI usually rises before the CPI.


Measures of Inflation• The GDP price deflator is used to

remove effects of inflation from a GDP so that different years can be compared in terms of spending value.

• The figure achieved after the GDP price deflator is used is the real GDP.


Aggregate Demand• Aggregate demand is the total

quantity of goods and services demanded by all people in the economy.

• Aggregate demand is related to the price level or the average of all prices as measured by a price index.

• If the price level goes down, a larger quantity of real domestic output is demanded per year.

Aggregate Demand and Supply

Aggregate Demand• The relationship on the aggregate

demand curve occurs because of the effect of inflation on the purchasing power of cash and the relative price of goods and services sold to other countries.


Aggregate Supply• Aggregate supply is the quantity of all

goods and services being produced.• If the price goes up and wages do not,

overall profits will rise and producers will want to supply more.


Putting Aggregate Demand and Aggregate Supply Together • If you combine the aggregate supply

curve and the aggregate demand curve, you can find the equilibrium price and quantity (where two curves meet).


Model of the Business Cycle• Begins with growth that leads to an

economic peak, boom, or period of prosperity.

• Real GDP levels off and begins to decline, while business activity slows down (contraction).

• If real GDP doesn’t grow for at least 6 months, economy is in a recession (business activity falls at a rapid rate).

Business Fluctuations

Model of the Business Cycle• If recession continues to get worse,

economy goes into a depression.• The downward direction of economy

levels off in a trough (lowest point in the cycle) and real GDP stops going down.

• Business activity increases and economy begins expansion or recovery.


Model of the Business Cycle

Ups and Downs of Business• In real world economy, business cycles

are not regular.• The largest drop in the U.S. economy

was following the stock market crash of 1929, which resulted in a severe depression.

• The rise climaxed after World War II.• In the 1970s and 1980s the economy

had small recessions.• The 1990s began with a recession but

became a time of great economic growth.


Ups and Downs of Business• The most recent recession lasted from

2007 to 2009.• Though unemployment remains high

and many Americans are still struggling, the economy has been expanding.


homework : guided reading due friday

Documents

rental income

income of selfemployed

national economys performance

gdp value

zimbabwe correcting

inflation hyperinflation

total dollar value

rate of inflation