Chapter 18 Ed Production Income and Empl

Chapter 18: Production,
Income, and Employment

Name:
• Spencer R. Dasalla
• Charl Ton Dalaten
• Daryll Escalante
• John Fernandez
• Lucky Angeline Fernandez
• Michelle Estocado
Production and GDP
• Gross domestic product (GDP)
– Total value
– Of all final goods and services
– Produced for the marketplace
– During a given year
– Within the nation’s borders
• The total value…
– GDP: measured in dollar values
COLLEGE OF BUSINESS EDUCATION

Production and GDP
• …of all final…
– Final goods and services: sold to their final user
• Intermediate goods
– Goods used up in producing final goods
– Value of all intermediate goods
• Included in the value of final products
• …goods and services…
• Goods: tangibles
• Services: intangibles
3
Production and GDP
• …produced…
– Not included: land, stocks and bonds, etc
• …for the marketplace…
– With the intention of being sold
• …during a given period…
– Specific period of time
– Not included: used goods
• …within a nation’s borders
– Regardless of who owns the resources
4
Figure • 1
Stages of Production
5
Tracking and Reporting GDP
• GDP
– Flow variable: measures a rate of production
• $40 billion worth of output each day
• $1.2 trillion each month
• $14.5 trillion for the year
6
• Annualization
– The government reports GDP as an annual rate
– But it is measured and reported (as an annual
rate) each quarter
7
Table • 1
Annualized data for GDP, real GDP, and growth rate, by quarters
8
• Nominal variable
– A variable measured without adjustment for the
dollar’s changing value
– Nominal GDP
• Real variable
– A variable adjusted for changes in the dollar’s
value
– Real GDP
9
• Comparing variables measured in dollars over
time
– It is important to translate nominal values to real
values
• Annual growth rate of real GDP
– Reported quarterly
– Annualized
10
The Expenditure Approach to GDP
• Expenditure approach: GDP=C+I+G+NX
– Adding the value of goods and services purchased
by each type of final user
1. Consumption goods and services (C) purchased by
households
2. Private investment goods and services (I) purchased
by businesses
3. Government goods and services (G) purchased by
government agencies
4. Net exports (NX) purchased by foreigners
11
• Consumption spending (C)
– Part of GDP purchased by households as final
users
– 70% of total production
– Not included:
• Imported consumption goods and components
• New home construction
12
– Part of GDP purchased by households as final
users
– 70% of total production
– Not included:
• Imported consumption goods and components
• New home construction
13
– Included - even though households don’t actually
buy them
• Total value of food products produced on farms that are
consumed by the farmers and their families themselves
• Total value of housing services provided by owner-
occupied homes
14
• Private investment (I)
– Business purchases of plant, equipment, and
software
– New home construction
– Changes in inventories
• Net investment
– Investment minus depreciation
15
• Private investment (I)
– Adds to the nation’s capital stock
– Excludes
• Government investment
• Consumer durables
• Human capital
– Ignores depreciation
16
• Government purchases (G )
– Spending by federal, state, and local governments
on goods and services
– Government consumption and investment
purchases
• Goods and services
• Government outlays
– Government purchases
– Transfer payments
17
• Transfer payments
– Payment that is not compensation for supplying
goods, services, or resources
– Money redistributed from one group of citizens
(taxpayers) to another (the poor, the unemployed,
the elderly)
– Included in government budgets as outlays
– Not included in the government purchases
component of GDP
18
• Net exports (NX)
– Total exports minus total imports
• Total exports
– U.S. production that is purchased by foreigners
• Total imports
– Americans’ purchases of goods produced outside
of the United States
19
Other Approaches to GDP
• Value added
– Revenue a firm receives
– Minus the cost of the intermediate goods it buys
• Value-added approach
– GDP = sum the values added by all firms in the
economy
20
Table • 3
Value Added at Different Stages of Production
21
Other Approaches to GDP
• Factor payments
– Payments to the owners of resources that are
used in production
• Factor payments approach
– GDP = sum the factor payments earned by all
households in the economy (wages and salaries,
rent, interest, and profit)
• Total output of the economy (GDP) = total
income earned in the economy
22
Measuring GDP: A Summary
23
How GDP Is Used
• Short-run
– Onset of a recession or a too-rapid expansion that
can overheat the economy
• Long-run
– Measure the long-run growth rate of the
economy’s output
– Real GDP needed to grow by about 3% per year to
provide enough jobs
• For a workforce that was growing in number and
becoming more productive every year
24
Problems with GDP
• Doesn’t include:
– Quality changes
– Most non-market production
– Leisure time, fairness, ‘bads’
• Underground economy – estimated
• Doesn’t distinguish between
– Production that makes us better off
– Production that only prevents us from becoming
worse off
25
Using GDP properly
• Short-term changes in real GDP
– Fairly accurate reflections of the state of the
economy
– A significant quarter-to-quarter change in real
GDP
• Indicates a change in actual production
• Rather than a measurement problem
26
Employment and Unemployment
• Unemployed
– Not working and
– Actively seeking a job
• Categories of unemployment
– Frictional
– Seasonal
– Structural
– Cyclical
27
• Frictional unemployment
– People who are between jobs
– People who are just entering or reentering the
labor market
– Is short-term unemployment
– Important benefits
• Workers: better suited for the job, more productive,
higher incomes
• Firms: more productive employees
• Society: more goods and services
28
• Seasonal unemployment
– Related to changes in weather, tourist patterns, or
other seasonal factors
– Short term
– Entirely predictable
• Seasonal adjustment
– Adjusting an economic variable
– To remove the effects of changes predicted to
occur at that time of year
29
• Structural unemployment
– Skill mismatch: between workers’ skills and
employers’ requirements
– Geographic mismatch: between workers’ locations
and employers’ locations
– Stubborn, long-term problem
• Cyclical unemployment
– Arising from changes in production over the business
cycle
– A problem for macroeconomic policy
30
• Full employment
– Zero cyclical unemployment
– Overall unemployment rate is greater than zero
• There are still positive levels of frictional, seasonal, and
structural unemployment
• Potential output
– Level of output the economy could produce if
operating at full employment
31
The Costs of Unemployment
• Economic cost
– Opportunity cost of lost output
– Output produced < Potential output
– Economy: produces less output
– Some groups within society: consume less output
32
• When real GDP is above potential output
– Unemployment is below its normal rate
– Employment is higher than full-employment
• When real GDP is below potential output
– Unemployment rises above its normal rate
– Employment falls below its normal, full-
employment rate
– Usually occurs during and following a recession
33
• Slump
– A period during which real GDP is below potential
and/or the employment rate is below normal
• Recession
– End of 2007 through June 2009
• Slump
– 2008 through the first half of 2011
34
• Broader costs
– Psychological and physical effects
– Setbacks in achieving important social goals
– Burden of unemployment
• Not shared equally among different groups in the
population
• Most heavily: minorities, especially minority youth
35
How Unemployment Is Measured
• Labor force
– Those people who have a job or are looking for
one
• Unemployment rate
– Fraction of the labor force that is without a job
36
Problems in Measuring Unemployment
• Official measure of unemployment

– Underestimates the extent of unemployment
• Treatment of involuntary part-time workers
• Treatment of discouraged workers
• Involuntary part-time workers
– Individuals who would like a full-time job
– But who are working only part time
37
• Discouraged workers
– Individuals who would like a job but have given up
searching for one
• BLS policy: discouraged worker if
1. Not working
2. Searched for a job at some point in the last 12
months
3. Currently want a job
4. State that the only reason they are not currently
searching for work is their belief that no job is
available for them
38
• Marginally attached to the labor force

– Meet the first three requirements of discouraged
workers
– But not necessarily the fourth:
• They can give any reason for not currently searching for
work
39

Chapter 18 Ed Production Income and Empl

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Chapter 18 Ed Production Income and Empl

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Chapter 18: Production,

Income, and Employment

COLLEGE OF BUSINESS EDUCATION

• Official measure of unemployment

• Marginally attached to the labor force

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