g: Describe alternative
measures of domestic output and income, including GDP, GNP, national income, personal income,
and disposable income.
•
Gross domestic product = the total market value of all final goods produced within a
country.
•
Gross national product = the total market value of all final goods produced by the
citizens of a country.
•
National income = the total income payments to labor and capital during the year. It
includes total earnings (domestic and foreign) of a nation’s citizens.
•
Personal income = the total income received by individuals. Note that transfer
payments such as social security are included here.
•
Disposable Income = personal income - personal taxes.
1.B: Preliminary Reading: Economic Fluctuations, Unemployment, and Inflation
a: Explain the phases of the business cycle.
The business cycle is characterized by fluctuations in economic activity. Real GDP and the
rate of unemployment are key variables used when determining the current phase of the
cycle.
The four phases of the business cycle are:
1.
Peak,
2.
Contraction,
3.
Recessionary Trough, and
4.
Expansion. As to the length of each phase, recent experience has shown that the
contractionary periods are becoming shorter, and the expansionary periods are
becoming longer in duration.
A recession is defined as a period during which real GNP declines for two or more
successive quarters. Both the contraction and recessionary trough comprise a recession. A
depression is a prolonged and very severe recession.
b: Describe unemployment statistics and discuss the problems in measuring unemployment.
The labor force is defined as those people of working age (+16) who are either employed or
seeking employment. The labor force participation rate is the number of persons 16 or older
who are either employed or actively seeking employment as a percentage of the civilian
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