2. MAXIMIZING NATIONAL OUTPUT= NATIONAL INCOME= GROSS DOMESTIC PRODUCT (GDP) GDP is the market value of all final goods and services produced in a country in a given time period. 1. Market Value= market price of products 2. Final Goods and Services: A final good (or service) is an item bought by its final user during a specified time period. A final good contrasts with an intermediate good, which is an item that is produced by one firm, bought by another firm, and used as a component of a final good or service. Excluding the value of intermediate goods and services avoids counting the same value more than once. 3. Produced Within a Country (inside the country border no matter what is the nationality of producer). GDP measures production within a country—domestic production. GDP MEASURES THE COUNTRY’S ABILITY TO USE ITS RESOURCES EFFICIENTLY THAT IS THE REASON BEHIND ENCOURAGING FOREIGN DIRECT INVESTMENT2. MAXIMIZING NATIONAL OUTPUT= NATIONAL INCOME= GROSS DOMESTIC PRODUCT (GDP) GDP is the market value of all final goods and services produced in a country in a given time period, GROSS NATIONAL PRODUCT (GNP) GNP is the money value of final goods and services produced by citizens (holding nationality) inside and outside the country during a specific period of time. GNP MEASURES THE INVESTMENT CAPABILITY OF A CERTIAN COUNTRYHOW TO MEASURE GDP? I HAVE TO APPROACHES TO MEASURE GDP. 1, EXPENDITURE APPROACH 2 INCOME APPROACH 1. RENT (R) 1. CONSUMPTION (C) 35-45% 2. WAGES(W) 2. INVESTMENT (I) 3. INTEREST 3. GOVERNMENT SPENDING (6) 4. PROFIT (P) 4. NET EXPORT(NX) [EXPORTS-IMPORTS] GDP= C+I+G+NX — GDP= R+W+INTEREST+ P GDP CALCULATED ACCORDING TO THE TWO SHADOW ECONOMY IS APPROACHES CHOULD BE EQUAL, HOWEVER LEGAL ACTIVITIES THAT THERE IS SHADOW OR INFORMAL OR ARE NOT DOCUMENTED PARALLEL ECONOMYPotential GDP versus Real GDP a WHAT I EXPECT TO PRODUCE WITH WHAT IS PRODUCED ACTUALLY AT FULL USE OF RESOURCES AND PAST THE END OF THE YEAR EXPERIENCE AT THE BEGINNING OF THE YEAR ECONOMIC GAP The GAP is the difference between Real GDP and Potential GDP. There are three conditions for the GAP. 1.NoGAP _ Real GDP= Potential GDP There is full use of resources 2. Real GDP< Potential GDP There is a large amount of unused resources. It is called Recessionary Gap 3, Real GDP> Potential GDP If the difference is small, then there is expansion. If the difference is large ,It is called Inflationary GAP.USES OF GDP (REAL GDP= RGDP) 1, CALCULATE PER CAPITA GDP STEP 1: CALCULATE GDP IN NATIONAL CURRENCY STEP 2: TRANSFER GDP FROM NATIONAL CURRENCY TO US DOLLARS STEP3: CALCULATE PER CAPITA GDP PER CAPITA GDP= RGDP($)/ TOTAL POPULATION IN REAL LIFE IT DOES NOT REFLECT STANDARD OF LIVING TO SOLVE THIS I HAVE TO CONCENTRATE ON ENCOURAGING SMALL MEDIUM ENTERPRISESUSES OF GDP (REAL GDP= RGDP) 2. CALCULATE ECONOMIC GROWTH I HAVE TO GET RGDP FOR TWO CONSECUTIVE YEARS ECONOMIC GROWTH RATE 2021= RGDP 2021- RGDP 2020/ RGDP 2020 +1003, REDUCING RATE OF UNEMPLOYMENT UNEMPLOYMENT IS PEOPLE IN WORKING AGE WHO ARE WILLING (SEARCHING FOR A JOB) AND ABLE (DOES NOT HAVE A PHYSICAL OR MENTAL DISABILITY) TO WORK BUT CAN NOT FIND A JOB HOW TO CALCULATE UNEMPLOYMENT UNEMPLOYMENT RATE= UNEMPLOYED/ LABOUR FORCE*100 LABOUR FORCE= PEOPLE IN WORKING AGE= UNEMLOYED+ EMPLOYED TYPES OF UNEMPLOYEMENT Unemployment can be Classified into three types: 1. Frictional unemployment= HIGH EMPLOYEE TURNOVER 2. Structural unemployment= MISMATCH BETWEEN EMPLOYEE QUALIFICATIONS AND JOB DESCRIPTION 3. Cyclical OR Seasonal unemployment: linked to business cycle or season4, REDUCING RATE OF INFLATION CPI BIAS 1. New goods bias= NEW GOODS ENTERED THE BASKET 2. Quality change bias= BUY DIFFERENT PRODUCT Quatity 3. Commodity substitution bias= TRANSFER TO SUBSTITITUTE PRODUCTS 4. Outlet substitution bias= CHANGING RETAILERS. INFLATION IS A RAPID INCREASE IN PRICE LEVEL OPPOSITE OF IT DEFLATION IS A RAPID DECREASE IN PRICE LEVEL HOW TO CALCULATE INFLATION? CONSUMER PRICE INDEX (CPI) CPI measures the average of the prices paid by average consumers for a “fixed” basket of consumer goods and services. INFLATION RATE 2020= CP12020- CPI2019/CPI2019*100MONEY Money is any commodity or token that is generally acceptable as a means of payment. A means of payment is a method of settling a debt. Money has three other functions: 1. Medium of exchange 2. Unit of account 3. Store of value Money consists of 1. Currency 2. Deposits at banks and other depository institutions Official Measures of Money The two main official measures of money are M1 and M2. M1 consists of currency and traveler’s checks and checking deposits owned by individuals and businesses. M2 consists of M1 plus time, saving deposits, money market mutual funds, and other deposits. _,EXCHANGE RATE MARKET The foreign exchange market is the market in which the currency of one country is exchanged for the currency of another. The price at which one currency exchanges for another is called a foreign exchange rate. A fall in the value of one currency in terms of another currency is called currency depreciation. A rise in value of one currency in terms of another currency is called currency appreciation.