Chapter 12

Economic Performance

Three Goals:

1. Economic Growth

2. Price Stability

3. Full Employment

Measuring progress towards Economic Growth:

GDP = Gross Domestic Product = dollar value of final goods and services produced within the country in a time frame (usually 1 year)

GDP =    C + I + G + (X - M)

GDP = Consumption + Investment + Government + (eXports – iMports)

NOT included in GDP

Intermediate goods

Sales of used goods (garage sales, used cars)

Financial Transactions (stocks and bonds)

Government Transfer Payments (Medicare, Social Security)

Goods or services produced but not sold (housework)

Exchanges without a record (lawn care paid in cash)

Illegally produced goods (underground market)

Economic Growth = More Goods and Services Produced

Inflation can skew the GDP numbers, preventing comparisons between years

Real GDP is adjusted for inflation (measures actual output)

Real GDP = Nominal GDP x (1- inflation rate)

Real GDP measures total output, not well-being of individuals

Factors affecting Economic Growth

Land

Labor

Capital

Entrepreneurship  

Productivity (increases wages and profits, decreases prices)

Standard of Living : Measure of economic well-being

               Per Capita Real GDP = Real GDP

Population 

Standard of Living goes up when Real GDP grows faster than the population

Other Important National Accounting Numbers

Personal Income (household income, including transfer payments)

Disposable Income (subtract personal taxes)

Population Vocabulary

census

urban

rural

demographers

infrastructure

fertility rate

life expectancy

net immigrations

baby boom

dependency ratio 

Poverty and Income Distribution

Poverty Threshold

Lorenz Curve

Factors affecting Income Inequality

Education

Wealth

Tax law changes

Service economy

Monopoly power

Discrimination

Single-parent families

Antipoverty Programs

TANF

SSI

Food stamps

Medicaid

EITC

Enterprise zones

Workfare

Negative Income Tax (proposal extending to non-working poor)