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GDP and why is it important
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value of all goods and services produced in the US and indicates when a nation economy is growing or shrinking (when GDP is up, standard of living is better) helps plan future product developments and improvements. measures economies health
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How to calculate GDP
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Using the expenditure approach-A method for calculating GDP that totals consumption, investment, government spending and net exports,income approach-total income of all who produce those goods,durable goods-is expected to last more than 3 years
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nominal GDP
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measured in current prices
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real GDP
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measured in prices normalized across years they convert the entire GDP to the amount of dollars was worth in 1920
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what are the problems with the real GDP
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it does not measure non market income (income that is not reported to the government) black market
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what makes GDP go up or down?
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prices rising or falling
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what is aggregate supply?
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total GDP+ average of all prices
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what is aggregate demand?
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opposite of supply in that when prices fall, there is more demand
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what is equilibrium
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any shift of aggregate supply or aggregate demand that has impacted GDP
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what is stagflation?
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decline in real GDP plus rise in prices (this is inflation)
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real GDP falls for what two straight cycles?
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recession-lasts 6-18 months and depression which is a very deep recession combined with high unemployment and low output
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how to ensure a good quality of living?
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GDP grows as fast as population
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what is the most accurate way of measuring the standard of living?
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measure the GDP per capita (by the person) tis doesnt measure how the output is spread across the population
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how does one grow the economy during the recession?
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capital deepening-increasing the amount of capital per worker via training (physical capital),savings help increase capital by individuals investing into mutual funds, banks have capital to lend
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what is a savings rate?
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percent of disposable income saved
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what is disposable income?
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income remaining after deduction of taxes and other mandatory charges, available to be spent or saved as one wishes logically used to pay off bills or to save
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what does a higher savings mean?
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more capital for banks snd more capital deepening
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