Exam 3
Labor Force
The number of people working or available for work. As the labor force goes up= output(GDP) goes up.
Raising GDP: Self Production will not be in GDP. $ exchanges hands= Included in GDP.
The rise of fast-food restaurants such as McDonald's, made it easier for families to go out to eat rather than preparing their food at home. All other things being equal the shift of food preparation from the home to the fast food restaurant would have an affect of?
Human Capital
The skill level of the workforce. As the human capital goes up= GDP goes up.
Residential Investment (RI)
The spending on the building of new homes and the renovation of existing ones. Example: Kitchen= Value of Kitchen= GDP. In contrast, if you buy an existing home, the spending does not count as part of residential investment because no actual production or consumption occurred. Remember GDP is about production of new goods and services.
Non-Residential Investment (NI)
The total spending by businesses on structures, equipment, and software they need to run their operations. "Equipment" Plant + Equipment= Capital. The biggest category of business investment spending today is software. A new factory in the United States, even if built by a foreign-owned company, is counted as part of U.S. GDP. It is location, not ownership, that counts for GDP.
The Base Year
The year for which you want to calculate the purchasing power of your money.
Transfer Payments
Transfer of $ from one person to another person(through taxation). They are sent out by the government, but the actual spending is done by the private sector. Examples: Unemployment insurance(that is paid for through tax dollars), Welfare, Medicaid, and Medicare. It is not included in the "G" category of GDP.
% change in $- inflation rate. Suppose that you have earned $100,000 in 2017. Your boss decides to give you a raise 2.4% in 2018, or $2,400.(that's 2.4% x $100,000). Formula= Real Money Amount= Nominal Money Amount x (Consumer Price Index for Base Year/Consumer Price Index Current Year). 2.4 x 100,000= $240,000. Suppose we wanted to calculate the real wages in 2018 dollars. According to the BLS in 2007 the average hourly wage for all workers was $20.92. By 2018, the average hourly wage had risen to $27.10. At first glance, that seems like a pretty good increase. But over the same stretch, the consumer price index rose from 207.3 in 2007 to 251.1 in 2018. So the real hourly wage in 2007= $20.92x(251.1/207.3)=$25.34.
Calculate and show how incomes and wages can be adjusted for inflation.
Below are the main components of GDP, along with their descriptions. Personal Consumption= Billions of Dollars in 2018= $13,952= Vehicles, food, housing, medical care, education, consumer electronics, and everything else that households can consume. Non-Residential Investment= Billions of Dollars in 2018= $2,800= Explanation= Computers, factory machinery, software, office buildings, airplanes, and all other long-lived capital investments that businesses use for production. Residential Investment= Billions of Dollars in 2018= $795=Explanation= Construction of new homes and renovation of existing homes. Change in Private Inventories=Billions of Dollars in 2018=$57. Explanation= Increase or decrease of inventories of manufacturers, wholesalers, and retailers. Government Consumption and Investment= Billions of Dollars in 2018= $3,523= Explanation= Salaries and benefits of government employees; purchases of supplies and equipment; construction of buildings, highways, and other infrastructure. Net Exports of Goods and Services= Billions of Dollars in 2018= $626= Explanation= Exports of goods and services to other countries, minus imports of goods and services from other countries. Gross Domestic Product= $20,501.
The Components of Gross Domestic Product, 2018?
Inflation Rate
The annual percentage change in the average price level CPI.
Gross Domestic Product (GDP)
The dollar value of the output of the national economy in a year. Example: 2nd Quarter of 2020 the GDP was $19.52 trillion.
GDP per Capita
The economic output divided by the size of its population.
High Productivity
The economy can produce more output with the same number of workers. This means higher wages.
Growth in the Economy
The economy produces more goods and services than before= GDP goes up. Economic growth is important because it results in a higher standard of living; most people are better off. GDP goes up= Jobs go up= Income goes up. A second benefit of growth is that it gives us more choices, as the economy is able to produce more goods and services.
Government Consumption (Spending) and Investment
The federal, state, and local governments also purchase goods and services or GDP. It includes all the government's purchases of goods and services, such as salaries paid to government employees. Government Consumption= Short-lived purchases of goods and services.= Salaries to workers, foods, pens/pencils, and paper. Government Investment= Long-lived purchases of goods and services.= Tanks, airplanes, buildings, and equipment(hardware+software). It is included in the "G" part of GDP.
Included=Government.
The government builds a new road?
Included and Personal Consumption.
The income a lawyer receives from drawing up Last Will and Testament?
Expected Inflation
The inflation rate that consumers and businesses expect will hold for some future period. It forms the basis for pricing and wage decisions that businesses make. If people expect that higher rate of inflation will continue, a wage-price spiral may occur. Businesses now boost prices and wages faster and faster to stay ahead of expected inflation. The worst possible case of a wage-price spiral is hyperinflation.
Consumer Expenditures(C)
The largest category of GDP is personal consumption expenditures, or consumer spending. Household Spending= "Consumers"/"Consumption". This category includes final goods and services purchased by households, including food, telephone services, personal computers, automobiles, gasoline, and charitable contributions. Medical services regardless of how the bull is paid, is part of consumer spending. Purchases of new homes not in C it is in RI.
"Money Illusion"
The mistake of comparing $'s in different time periods without accounting for inflation.
GDP does not include the non-market economy, in which people may work just as hard but not get paid. Example: A stay-at-home parent is not given credit in the national income accounts for all the time and effort that goes into raising children, cleaning houses, and cooking food. All the hard work put in by volunteers at hospitals, schools, and religious organizations is not counted in GDP either. GDP also doesn't measure the underground economy, the portion of the economy that does not pay taxes or otherwise get reported to the government. Example: Illegal activities such as drug dealing, and off-the-book transactions such as the baby sitter or the landscaper who gets paid in cash and does not report it to the Internal Revenue Service. Estimates vary widely but the size of the underground economy in the United States could be as large as 10% of GDP.
Explain what GDP does not include.
Net Exports (NX)
Exports minus imports. Exports are goods + services produced in the United States and sold outside the country, so they add positively to GDP. Imports are goods + services produced in the United States and consumed within this country. They enter the GDP calculation with a negative sign. U.S.: Imports>Exports. We consume more than we produce in the United States, because some of what we consume is produced overseas.
To raise up healthcare you must lower entertainment.
Figure 9.2: Production Possibility Frontier(PPF)?
Final Goods and Services
G+S that is purchased for it's final usage. They count in GDP.
It is the location, not ownership, that counts for GDP. GDP= All goods and services produced in U.S. oil. (Even G+S produced by foreign companies).
GDP= All Goods and Services Produced on U.S. Oil?
Included=Change in Inventory.
General Motors makes 5,000,000 more than it sold?
Included=Residential Investment.
George adds a deck onto his home?
Intermediate Goods and Services
Goods and services purchased to be a production of a final good or service. They are excluded from GDP to avoid double-counting. Example: Ford Explorer(Final Good), and Goodyear Tires(Intermediate Goods).
The government plays a key role by setting the laws and rules under which businesses operate. Some laws and rules encourage growth by making markets work better. Other laws and rules may reduce growth. The extent of government intervention in the economy is subject to intense political debate.
Government and Growth?
A zero-sum economy is one of no growth. In a zero-sum economy you can only increase the production of one good by cutting the production of something else.=Scarce Resources. With no growth, the economy operates on the same production possibility frontier. A growing economy is non-zero sum. In this case, the production possibility frontier is shifting outward. It is possible to get more of both goods.
Growth vs. Economy?
The growth versus zero-sum argument can be applied to the distribution of income. With no growth, the only way to make low-income households better off is to take money away from middle-income or high-income households. Redistribution of income. In a growing economy, it is possible for everyone to see their incomes rise.
Growth vs. the Zero-Sum Economy Continued?
The harm from inflation depends on two cases: 1. First is the case of unexpected inflation, which occurs when the actual inflation rate is above the expected inflation rate. In this case, lenders are harmed since they're being paid back with less valuable dollars.= Surprised by inflation.= A decrease in purchasing power that lenders receive. Borrowers benefit from unanticipated inflation.= A decrease in purchasing power of the interest that borrowers pay. 2. Second is the case of expected inflation, where the actual rate inflation is equal to the expected rate of inflation.= Not surprised by the inflation. The problem with anticipated inflation is that it can lead to a wage-price spiral due to annual cost-of-living adjustments (COLA) in union contracts and certain government programs. COLA= Contract that requires wages/salaries to go up when inflation goes up. Businesses Increase P(to cover increase in wages + salaries)= those increase in P= Increase in CPI= Wages + Salaries go up= Businesses Increase in P= Keeps spiraling upwards. High levels of inflation increase the cost of transactions— the time and effort that goes into managing your money, attempting to earn a rate of return higher than the rate of inflation.= Inflation goes up= People seek safe places to put $.= Opportunity Cost goes up.
Harm from Inflation?
We look at the change in GDP per Capita.
How do we determine how fast the standard of living is improving?
GDP is a good indicator of growth in the economy.= GDP goes up. But we must distinguish between nominal and real GDP.
How do we measure Growth?
We measure the average price level through the Bureau of Labor Statistics(BLS). Calculates this average on a monthly basis.
How do we measure the average price level?
Purchasing Power
How much you can buy with a certain amount of money. Example: $1 which means as inflation goes up then the amount that you can buy with $1 goes down. As inflation goes up the purchasing power goes down. Example: 1968: $13, 192.000 income. 2020: $100,000 income.= Purchasing Power is the same.
GDP is made up of the following components: Personal Consumption (C)= Household purchases of goods and services. Non-Residential Investment(NI)= Business spending on plant (buildings + equipment). (Hardware + Software). Residential Investment (RI)= Involves the purchases of new homes and renovations on existing homes. Government Consumption and Investment (G)= Government purchases of goods and services. Change in Private Inventories(PI)=Value of goods and services produced that have not yet been purchased. Net Exports (NX)= Exports - Imports. Net foreign purchases. GDP is the sum of these components: GDP= C+NI+NI+RI+G+PI+NX.
What are the components of GDP?
Today the Bureau of Economic Analysis (BEA), the Bureau of Labor Statistics (BLS), the Census Bureau, and the Federal Reserve are the main statistical agencies in Washington. They conduct surveys, collect data, and regularly publish reports on the key economic statistics. These include production, unemployment, inflation, productivity, and foreign trade.
What are the main statistical agencies in Washington?
The Great Depression
What are the requirements of GDP?
The 3rd Quarter came in at +33.1% growth.
What do you think 3rd Quarter came in at?
GDP focuses on the market economy= Where money exchanges hands legally. GDP: Only includes goods + services produced in the market economy. Thus, non-market(production) transactions are not included. Production is where money does not exchange hands.= "Unpaid Production". 1. Self Production. 2. Volunteer Work. 3. Barter= Good for Good. GDP only includes new production of goods + services. GDP also doesn't include underground economy. Underground Economy= Illegal Production. 1. G+S that are illegal (drugs). 2. Legal G+S produced illegally (farm-legal crops, hiring workers that are paid under the table). GDP measure underestimates total production.
What doesn't GDP Include?
Economic growth depends on the growth inputs. Number of workers and human capital. Investment in physical capital. Increase in raw materials. Increase in knowledge.
What drives Growth?
One goal of economic policy makers is to keep inflation under control.= Stable + Predictable. Economic Policy Makers= Federal Reserve Banks= Goal: Inflation= 2%.
What is the goal of economic policy makers?
The 2nd Quarter GDP growth is -31.4%.
What was 2nd Quarter GDP growth?
A steady 2% inflation rate= Goal of Federal Reserve.
Which situation would most economists prefer?
Simon Kuznets.
Who created a framework for measuring the U.S. economy?
Measuring the size of the economy is done in order to identify economic problems, diagnose the causes, and figure out what the right policy might be to fix them.
Why do we measure the size of the economy?
Excluded and Intermediate Input.
You supply chocolate to manufacturers who turn cashews into chocolate-covered cashews?
Year 5= BY Real Wage=$17.80(106.90/108.00)= $17.62.
In year 5, average nominal wages were $17.00 per hour and the consumer price index (CPI) was 106.90. In year 6, average nominal wages were $17.80 per hour and the CPI was 108.00.
Increase in knowledge are probably the main source of growth in developed countries such as the U.S.. Better knowledge leads to new products, new methods of production, and production of more goods and services with the same amount of resources. Increases in knowledge include improvements in science and technology.
Increase in Knowledge?
GDP goes up= Jobs will go up= Income will go up.
Increase in Living Standards?
GDP goes up. Raw Materials(comes from the earth) are essential input for growth. Raw materials include everything from oil, to bauxite, to water. Economics consume more raw materials as they grow. Greater use of raw materials has potentially negative environmental consequences.
Increase in Raw Materials?
Converting Nominal $'s into Real $'s. Nominal Values=Have inflation in them. Real Values=Adjust for inflation. Equation= Real $ Current Year= Nominal $ Current Year x (CPI BY/CPI CY). Year= 2017=CPI=200=Nominal Wages=$30.50=Real Wages=$30.50. CY= Current Year. BY= Base Year. Year=2018=CPI=205=Nominal Wages=$32.00=Real Wages=$31.22. Year=2017=CPI=200=Nominal Income=$95,000=Real Income=$97,375. Year=2018=CPI=205=Nominal Income=$110,000=Real Income=$110,000.
Inflation & Adjusting for Inflation?
A sustained upward movement in the average level of prices.
Inflation can be defined as?
Other countries calculate their own GDP using roughly the same methods as the U.S.. This allows us to make an international comparison of GDP.= Total GDP= U.S. is the largest. In order to compare living standards between countries we use GDP per Capita.
International Comparisons of GDP?
Change in (Private)Inventories(PI)
Inventories= New goods(production) that have not yet been sold.
A firm's purchase of equipment and buildings for production(physical capital) is essential for growth. GDP goes up overtime. Production of any good requires physical capital. Giving workers more and better equipment will enable them to produce more output.
Investment in Physical Capital?
Included=Personal Consumption.
Joe purchases a new riding lawn mower?
Aggregate Production Function: 1. Increase in the number of workers(labor). 2. Increase in education and skill level(human capital). 3. Increase in equipment and structures(physical capital). 4. Increase in raw materials(from land). 5. Increase in knowledge(technology and business-know how).= Real GDP growth.
List the forces driving economic growth.
Average Price Level
Measures how much it costs to buy a market basket of common goods and services.
Nominal GDP
Measures the output of an economy in dollars , not accounting for inflation. Nominal GDP includes inflation in its measure. If nominal GDP goes up we don't know if that's from an increase in production and an increase in price.
As the labor force increases, output should rise as well. Besides the number of workers, their education and skill levels are critical for growth. In general, better trained and more educated workers will produce more.
Number of Workers and Human Capital?
Real GDP per Capita
Real GDP divided by the number of people in the country. Real GDP per Capita(Person)= Real GDP/Population. Table 9.2: Calculating Real GDP per Capita: Year= 2017= Real GDP(Billions of 2009 Dollars)= $18,051/ Population(Millions of People)= 325.4= Real GDP per Capita(2009 Dollars)=$55,473. Year=2018= Real GDP(Billions of 2009 Dollars)= $18,571= Population(Millions of People)= 327.4= Real GDP per Capita(2009 Dollars)= $56,723. Percentage change from 2017 to 2018= Real GDP(Billions of 2009 Dollars)= 2.9%= Population(Millions of People)= .6%.= Real GDP per Capita(2009 Dollars)= 2.3%.
Nominal Dollars= Not adjusted for inflation. Real Dollars= Are adjusted for inflation. Real Money= Nominal Money x (CPI Base Year/ CPI Current Year)= CPI= Consumer Price Index. Example: Change in 2018 $ in 2007 $= Base Year= 2007. Year= 2007= CPI= 207.3= Nominal Wages= $20.92. Year=2018= CPI=251.1=Nominal Wages= $27.10. Equation= Real(2018) $= Nominal Value(2018) x (CPI BY/CPI CY). Real Wage(2007)=$27.10 x (207.3/251.1)= $22.37= Value Wages in 2007 $'s. Real Wages in 2007 $'s= $20.92=$22.37= Increase in purchasing power(increase in real wages). Example: Change in 2007 $ to 2018 $= Base Year=2018. Year=2007=CPI= 207.3= Nominal Income= $50,000. Year= 2018= CPI= 251.1= $65,000. Real Income (2007)= Nominal Income (2007) x (251.1/207.3)= $60,564.40= Real Income in 2007 $'s measured in 2018 $'s. Real Income in 2018 $'s= $60.564.40= $65,000.= Increase in purchasing power.
Real vs. Nominal Dollars?
Market Basket
Samples of G+S in the economy.
Short-term growth on a year to year basis. Long-term growth looks at growth over longer periods.
Short-Term vs. Long-Term Growth?
Macroeconomics
Studies the economy as a whole. Core concepts include the issues of output, inflation, growth, and unemployment.
The problem in measuring GDP is that different types of goods and services are each measured in different units. Example: How do we compare automobiles with pairs of shoes? We value them differently.= 100,000 pairs of shoes, and 10,000 cars.= GDP= 100,000 + 10,000= 110,000. Each good and service must be expressed as a dollar amount and then all the dollar amounts can be added up. GDP=(PS x QS) + (PC x QC).= We calculate GDP by adding up how much is spent on the G+S production.
The Basics of Gross Domestic Product?
Excluded=Non-Market Economy.
A professional painter paints his own home?
Disinflation
A reduction in the positive inflation rate. Example: 2015= 4%. 2016= 3.5%. 2017= 2.7%.
Hyperinflation
A very rapid increase in the average price level. >50% inflation per month.
To compare household income overtime, we must adjust the income for the impact of inflation. Example: 1990 Income= $50,000. 2020 Income=$99,572. They are equivalent in terms of purchasing power.
Adjusting for Inflation?
Gross National Product(GNP)
All goods and services produced by U.S. nationals (regardless of location).
Systems of National Accounts
All statistics that feed into the process of measuring GDP.
Production Possibility Frontier(PPF)
All the combinations of different goods and services that the economy is capable of producing at a particular time.
The System of National Accounts
All the statistics that feed into the process of measuring GDP. The process requires measuring the output, and price of over a million goods and services.
Excluded=Intermediate Input(Self Production).
Aunt Mae's Apple Pie CO. purchases apples from a local orchard?
CPI(Consumer Price Index)
Average price level of consumer market basket.
Inflation is a problem since it reduces consumer's purchasing power. If inflation increases, your money buys less and less.
Basics of Inflation?
Deflation
A fall in the average price level. Negative inflation rate: Example: 2004= -2.5%.
How it works: Calculating the Growth Rate: The Bureau of Economic Analysis regularly reports the growth rate of the U.S. economy, which represents the percentage increase in real gross domestic product. For example, in 2017, real GDP was $18,051 billion, measured in 2012 dollars. In 2018, real GDP was $18,571 billion, measured in 2012 dollars. The growth rate from 2017 to 2018 was 2.9%. Billions of 2012 Dollars: Real GDP in 2017= $18,051. Real GDP in 2018= $18,571. Growth Rate=(18,571 / 18,051)-1= 2.9%. Table 9.1: GDP vs. Real GDP= Real GDP is measured in 2012 dollars, which removes the effects of inflation. The third column shows the growth rate of GDP, including inflation. The fourth column shows the growth rate of real GDP, which is adjusted for inflation. Year=2012=GDP(Billions of $'s)= $16,197=Real GDP(Billions of 2012 $'s)=$16,197=Growth Rate of GDP(%)=4.2%= Growth Rate of Real GDP(%)=2.2%. Year=2013=GDP(Billions of $'s)= $16,785= Real GDP(Billions of 2012 $'s)= $16,495= Growth Rate of GDP(%)= 3.6%=Growth Rate of Real GDP=1.8%. Year=2014= GDP(Billions of $'s)= $17,522= Real GDP(Billions of 2012 $'s)= $16,900= Growth Rate of GDP(%)= 4.4%= Growth Rate of Real GDP(%)= 2.5%. Year=2015= GDP(Billions of $'s)= $18,219= Real GDP(Billions of 2012 $'s)= $17,387=Growth Rate of GDP(%)=4.0%= Growth Rate of Real GDP(%)= 2.9%. Year=2016=GDP(Billions of $'s)= $18,707= Real GDP(Billions of 2012 $'s)=$17,659=Growth Rate of GDP(%)= 2.7%=Growth Rate of Real GDP(%)=2.7%. Year=2017=GDP(Billions of $'s)=$19,485=Real GDP(Billions of 2012 $'s)= $18,051= Growth Rate of GDP(%)= 4.2%= Growth Rate of Real GDP(%)= 2.2%. Year= 2018= GDP(Billions of $'s)= $20,501= Real GDP(Billions of 2012 $'s)= $18,571= Growth Rate of GDP(%)= 5.2%= Growth Rate of Real GDP(%)= 2.9%.
Calculate the economic growth rate?
Excluded=2nd Hand Sale.
Carrie purchases a used iPad on eBay?
GDP tells us which countries have the most production, indicates which countries have the highest living standards, and calculates military capabilities. GDP per Capita measures the amount of output each person would get if the economic pie were sliced evenly.
Compare GDP and GDP per Capita.
GDP= The dollar value of the total output of the economy in a year. Final Goods and Services are goods and services that are bought by their ultimate users. Intermediate Inputs includes any goods and services bought by a business that are completely used up in production in less than a year.
Define GDP and distinguish between final goods and services, and intermediate inputs.
Figure 9.9: The Four Eras of Productivity Growth: After WW2 the United States experienced rapid productivity growth until mid-1970s. Then, productivity growth slowed for roughly two decades, followed by a speed-up as businesses learned how to use information technology and globalization increased. Finally, in recent years productivity growth has slowed for as yet unexplained reasons. Golden Age: Occurred at the end of WW2, when productivity-output per hour rose at an average of 2.8% per year real growth was strong, inflation was low, and living standards rose rapidly for most people. The Golden Age was also the period at government expansion. Example: The construction of the interstate highway system, the massive program to put people on the moon, the creation of Medicare. This means that with output per hour rising steadily, the economy was producing enough spare resources to expand government spending into new areas. The Golden Age ended in 1973 due to the big jump of oil prices. Productivity Slowdown: The productivity slowdown took place in 1973 due to the baby boom generation because employees were so young, inexperienced, and not highly productivity. Environmental regulations that were passed down in the late 1960s and early 1970s such as the Environmental Protection Agency in 1970 were dragging down economic growth. U.S. workers weren't saving and investing enough which was holding back productivity. There weren't enough new products and innovations and businesses were churning out the same old cars and washing machines. From 1973 to 1995, productivity growth slowed only 1.4% per year because the real wage gains for many workers were much smaller and nonexistent and U.S. consumers that were strapped for money were less willing to pay high tax rates. Information Revolution: The information revolution took place in 1995. This when businesses learn how to use computers to produce more output with fewer workers, even as the rise of the internet helped tie all of those computers together, and with a great expansion of globalization, businesses know how to use foreign suppliers to cut their costs. Unexplained Productivity Slowdown: This took place in 2005 when productivity growth started to slowdown. It only averaged 1.3% annually in 2005 to 2018. In early 2019 economists had no explanation for the new productivity slowdown. Some believed that the new productivity slowdown was a temporary pause in economic growth, other economists worried that the forces that had driven growth in the past(investment in physical capital, human capital, and knowledge) had ran out of steam. Others believed that the government was over regulating the economy, or that statisticians were mismeasuring new industries like e-commerce.
Discuss the history of U.S. productivity and growth.
The overall inflation rate and the core inflation rate are the inflation figures that get the most attention each month, unlike the relative price shift that occurs when the inflation rate of a good or service is significantly higher or lower than the overall inflation rate. For instance if the relative price shift is higher, then that certain good or service is getting more expensive overtime relative to other possible purchases. However if the inflation rate of a good or service is lower than the overall inflation rate, it's getting relatively cheaper.
Explain the difference between relative price shifts and the overall inflation rate.
Disadvantage: Example: The bank may lend you $100 with the requirement that you will pay back the money, plus $10 in interest next year. The disadvantage for the lender is that if the price level unexpectedly jumps, that means that borrowers get to pay back their loans with less valuable dollars. If inflation unexpectedly turns out to be 10% for the year, and the bank receives repayment of its loan, the repayment is worth 10% less. If the inflation rate is high enough, the bank may actually lose money on the loan. Advantage: Unexpected inflation helps borrowers temporarily due to the fact that they are paying back their loans with inflated dollars. Disadvantage: If the lenders realize that prices are rising, then the benefits to borrowers from unexpected inflation will evaporate and leads to lenders raising their interest rates to compensate for the fact that they are getting paid back in inflated dollars. Disadvantage of Expected Inflation: Examples: If the employers automatically bump up wages for inflation, they will have to raise prices to compensate for their increased costs. As a result cost of living adjustments build inflation into the economy and make a wage-price spiral more likely.
Discuss the impact of unexpected and expected inflation.
Table 9.2: Calculating Real GDP per Capita: Dividing real GDP per Capita. From 2017 to 2018, real GDP per Capita grew by 2.3%. 2017= Real GDP(Billions of 2012 Dollars)=$18,051=Populations(Millions of People)= 325.4= Real GDP Capita(Real GDP/Population)(2012 Dollars)= $55,473. 2018= Real GDP(Billions of 2012 Dollars)= $18,571= Population(Millions of People)= 327.4= Real GDP Capita(Real GDP/Population)(2012 Dollars)= $56,723. Percentage change from 2017 to 2018=Real GDP(Billions of 2012 Dollars)= 2.9%= Population(Millions of People)= .6%= Real GDP Capita(Real GDP/Population)(2012 Dollars)= 2.3%. Real GDP Capita=(Real GDP/Population). Back then real GDP per Capita in the United States in inflation adjusted in 2012 dollars was $6,418. In 2018, real GDP per Capita was $56,723 in 2012 dollars. This is because of the lack of many goods that we take for granted today. For example, in 1915 you couldn't take an airplane trip, listen to the radio, watch television, or use the computer because none of these technologies existed during that time period. Also, in 1915 automobiles were rare and antibiotics weren't part of the medical toolkit. Without weather satellites or radar it was impossible to forecast tornadoes or hurricanes, as a result the death rate from severe weather were much higher.
Discuss the short-term and long-term change in living standards, and calculate real GDP per Capita.
Real GDP
Equal to the growth in nominal GDP adjusted for inflation. This shows the actual increase in goods and services. Real GDP doesn't have inflation in it.
Productivity
Equals real GDP for a given year divided by the total number of hours worked in that year by all workers. Productivity= Real GDP/# of hours worked.
Economic growth makes people better off in many different ways both tangible and intangible because today all homes in the United States have complete plumbing facilities(defined as hot and cold running water, a bathtub or shower, and a flushable toilet) as opposed to 1940, in which almost half of all U.S. homes lacked these essential resources. In 1950, there 29 infant deaths for every 1,000 live births in the United States, the U.S. economy grew enough to make it possible to devote more resources to better healthcare for pregnant women and new borns. As a result, the infant mortality rate plunged to only 5.9 infant deaths per 1,000 live births in 2016. A bigger economy can provide entertainment because in the 1960's a typical household only had access to fewer than 10 television channels that were broadcast. Then cable television raised the number of available channels to 100 or more and today the internet opens a vast number of entertainment choices and people are going more places as well.
Explain the benefits of economic growth.
The government plays an important role in economic growth because the government sets laws, and rules for everything from foreign trade to how mortgages are issued. Laws are actually legislation that is passed by Congress, state, and local governments as opposed to rules which are the regulations that are issued by various government agencies.
Explain the role of government in economic growth.
