2 Ways to Calculate GDP:
- Income Approach- add up all the income that resulted from selling all final goods and services produced in a given year ( don't use it because people lie about their income)
Formula: w+R+I+P+ statistical adjustments ( wages, rents, interests, profits)
- Expenditure Approach- add up all the spending on final goods and services produced in a given year
Formula: GDP= C (consumption) + IG ( gross private domestic investment) + G ( government spending) + XN ( net exports EX- Im) 
Compensation of employees- wages and salaries, wage in salary supplements such as pensions, health insurance and welfare
Rents- income received by the households and businesses that supply property resources
Interest- money paid to suppliers of loans
Proprietor's- comes from sole proprietor ships( you own your own business/ entreperneurship) and partnerships
Corporate profits- could include dividends, corporate income taxes, undistributed corporate profits

Statistical Adjustments- indirect business taxes, consumption of fixed capital ( depreciation), net foreign factor payment
Budget Surplus:
Formula- Government Purchases of Goods and Service + Government transfer payments - tax and fee collections
(+) = deficit
(-)= surplus

Trade Surplus- Exports - Imports
(+) = surplus
(-) = deficit

National Income-
1) Compesation of employees + rent + interest income + proprietor's income + corporate profits
2) GDP- Indirect buisness taxes- depreciation- net foreign factor payment)

DPI= National Income - product household payment + government transfer payment
Net Domestic Product ( NDP) -
Formula: GDP- depreciation
Net National Product (NNP)
Formula: GNP - depreciation
GNP= GDP + Net foreign factor payment



Nominal GDP- the value of output produced in current prices
- measure price increase/ inflation
Real GDP- value of output produced in constant base year prices
- adjusted for inflation
- measure economic growth
Formula for Nominal and Real GDP (Price • Quantity)
Base year- earliest year Nominal GDP = Real GDP
In years after the base year- Nominal GDP will exceed Real GDP
In years before the base year- Real GDP will exceed Nominal GDP

GDP Deflator- a price index used to adjust from nominal to real GDP
Formula: Nominal GDP/ Real GDP( 100)
- In the base year the GDP deflator = 100
- for years after the base year the GDP deflator is greater than 100
- for years before the base year the GDP deflator is less than 100

Consumer Price Index (CPI)- most commonly used measurement of inflation it measures the cost of a market basket of goods for a typical urban American family
Formula: cost of a market basket of goods in a given year/ cost of a market basket of goods in the base year (100)

Inflation-
Formula: Price index in year 2 ( current year) - price index in year 1 ( old year) / price index in year 1 (old year) • 100

Real Interest Rate vs. Nominal Interest Rate:

Nominal Interest rate- not adjusted for inflation but real interest rate is
It is the percentage increase in money you pay the lender for the use of money you borrowed (interest)
Real Interest Rate- adjusted for inflation and percentage increase in purchasing power the lender receives when the borrower repays the loan with interest

Formula:
Real Intrest Rate: Nominal Interest rate - inflation
Nominal Interest Rate: Real Rate of Interest + inflation premium

Hurt by Inflation:
1. Savers
2. Lenders/ Crediters
3. Those who are on a fixed income ( elderly, welfare, retired, pigeon plans)

Helped by Imflation:
1. Debtors
COLA: automatic wage increases when inflation occurs


Unemployment- failure to use available resources particularly labor to produce desired goods and services
Labor Force- Anybody above 16yrs of age who's able and willing to work
Employed + Unemployed = Labor Force
Not in Labor Force-
1. Military
2. Homemaker
3. Retired people
4. Disabled people
5. People in mental institutions
6. Jail/ Prison
7. Students
8. Those who are not looking for work

Unemployment Rate:
4-5% considered as full employment or natural rate of unemployment (NRU)

How to calculate the unemployment rate:
Formula- number unemployed/ number employed + number unemployed (100)

Types of Unemployment:
Frictional- people who are looking for a job, temporarily unemployed or inbetween jobs, individuals with transferable skills
Ex: high school/ college graduate looking for a job, individuals leave their jobs in hope of finding a better one
Structural- change in the structure of the labor force makes some skills opsalet, these workers do not have transferable skills
Ex: people who work for NASA
Seasonal- due to the time of the year and the nature of the job
Ex: school bus drivers, Santa Claus and Easter Bunny, life guards, construction workers, firework sellers
Cyclical- results from economic down turns such as recessions as demand for goods and services falls, demand for labor falls and workers are laid off

Two of the 4 types of u employment are unavoidable:
Frictional + Structural= Natural Rate of Unemployment

Unit 2

Circular flow diagram- represents transactions in an economy
Product market- place where goods and services are produced by businesses
Factor Market- the place where households sell resources and businesses buy resources
Firms- an organization that produces goods and services for sale
Household- a person or group of people that share their income, they also sale factors of production to businesses

GDP (Gross Domestic Product): Total market value of all final goods and services that is produced within a country's borders in a given year

GNP (Gross National Product): total market value of all final goods and services by citizens of that country on its land or foreign land

Included in GDP:
C- Personal Consumption Expenditures (65%)
IG- Gross Private Domestic Investment ( 17%)
ex: new factory equipment, factory equipment maintenance, construction of housing and unsold inventory of products built in a year
G- Government Spending (20%)
ex: school buses, teachers, salaries, community places
XN- Net Exports ( Exports- Imports) (-2%)

What's not included in GDP:
1. Intermediate goods- goods that require further processing before they are ready for final use
2. Used/ Second hand goods ( avoid double counting)
3. Purely financial transaction ( stocks and bonds)
4. Illegal activities ( drugs)
5. Unreported business activity ( unreported tips)
6. Transfer payments
- public ( social security, veterans and welfare)
- private ( scholarship)
7. Non- market activities
- volunteering
- babysitting
- any work that you preform for yourself