• Unit 2: Gross Domestic Product, Inflation, and Unemployment

    In macroeconomics, we study the total output an economy generates. Economists use gross domestic product (GDP), the monetary value of all final goods and services produced within a country's borders in one year, to measure a country's total output. Macroeconomics tend to use real GDP, rather than nominal GDP, for their comparisons since real GDP removes the effect of inflation. Measuring growth in current dollars (which does not account for inflation) rather than constant dollars might indicate a false sense of economic growth or decline.

    Governments focus on three key indicators of economic growth: an increase in real GDP over time, full employment, and price level stability. Unit 5 explores how governments form, implement, and evaluate their fiscal and monetary policies to achieve these three goals. In this unit, we uncover scenarios and philosophical debates about the government's role in a market-based economy. We examine whether GDP accurately measures societal well-being, quality of life, and standard of living.

    Completing this unit should take you approximately 6 hours.

    • 2.1: Defining GDP

      How large is the U.S. economy compared to other countries? Gross domestic product (GDP) measures a country's entire income. Gross means entire, domestic refers to a particular economy, and product refers to economic output or activity. GDP is the most widely recognized measure of a country's economic strength and performance. GDP measures two things: the country's total income and total spending. In an economy, income and expenditure equal each other.

    • 2.2: Defining Business Cycles

      The business cycle refers to the movement of the economy from peak to trough and trough to peak. The trough is the lowest point of a recession before a recovery begins. The peak is the highest point of the economy before the recession begins. In other words, a recession lasts from peak to trough, and an economic upswing runs from trough to peak.

    • 2.3: Economic Growth

      Economic growth is when a nation's wealth increases over time, and we see an increase in the production of goods and services. Increases in capital goods, labor force, human capital, and technology contribute to economic growth, which is measured by an increase in the aggregate market value of additional goods and services produced, using estimates such as GDP.

    • 2.4: Real GDP and Nominal GDP

      Nominal GDP reflects the raw numbers in current dollars unadjusted for inflation, while real GDP accurately adjusts the numbers by fixing the currency value, thus eliminating any distortion caused by inflation or deflation. The difference between nominal and real GDP is that nominal GDP is not adjusted for inflation, while real GDP is. Therefore real GDP is the better measurement to consider.

    • 2.5: Defining Inflation

      Inflation is the general rise in prices. Therefore, inflation represents a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual price change for everyday goods and services such as food, clothing, furniture, and transportation.

    • 2.6: Unemployment

      The unemployment rate, another important economic indicator, measures how close an economy is to full employment. A key measure of the economy's health, unemployment is when someone actively searches for work but cannot find a job. There are three types of unemployment: frictional, structural, and cyclical. Cyclical unemployment is unavoidable because it results from the economy's reoccurring boom and bust cycles. Frictional and structural unemployment are avoidable and can be minimized.

    • Unit 2 Assessment

      • Receive a grade