Nobody needs a lift ticket. That makes your resort one of the first businesses in the economy to feel it when households start feeling rich, or start feeling poor.
Learning objectives. After this week you can (1) say what GDP counts, using C + I + G + NX; (2) name the four phases of the business cycle; and (3) compute a growth rate.
Remember this: GDP counts new output. Real GDP takes out price changes, so it is the one that tells you whether the economy actually grew.
1) GDP: everything new the economy made
GDP = C + I + G + NX
Gross Domestic Product (GDP) is the market value of all final goods and services an economy produces in a period. C is household consumption, I is business investment (a firm buying a new chairlift), G is government spending, and NX is net exports (exports minus imports). A lift ticket, a new chairlift and a newly built house all count. A used snowboard resold, a purchase of shares, or a gift of cash do not: nothing new was produced. GDP per capita is GDP ÷ population, so if both grow 2%, GDP per person stays about the same.
2) Nominal vs. real
Nominal GDP uses this year's prices. Real GDP uses constant prices, so it is adjusted for inflation. If prices rise 3% and nominal GDP rises 3%, the economy produced no more than before: real growth is about zero.
3) The business cycle
Economies move through expansion → peak → contraction → trough, then expand again. The trough is the bottom, just before recovery. A recession is commonly defined as two consecutive quarters of falling real GDP. In an expansion, unemployment usually falls. A ski trip is discretionary (nice to have, easy to skip), so resort demand swings harder than the economy does.
Growth Rate = (New − Old) ÷ Old × 100
Real GDP goes from $20.0T to $20.6T: 0.6 ÷ 20.0 × 100 = +3%. From $20.0T to $19.4T it is −3%, a contraction.
4) Reading the cycle from your resort
Your Daily Report does not print GDP. It prints two cycle signals on its Macro environment line: consumer confidence and unemployment. Rising confidence with falling unemployment looks like an expansion; the reverse looks like a contraction. The same growth formula works on your own revenue: $64,000 on Tuesday and $68,800 on Wednesday is 4,800 ÷ 64,000 × 100 = +7.5%.
Quick self-check
(a) Real GDP goes from $18.0T to $18.9T. Growth rate? (b) A family buys a used snowboard. Does it count in GDP? (c) Confidence is rising and unemployment is falling. Which phase does that suggest? (Answers: 0.9 ÷ 18.0 = 5%; no, nothing new was made; an expansion.)
Common mistakes
- Calling nominal growth real. Growth that only came from higher prices is not more output.
- Dividing by the new number. A growth rate always divides by the old value.
- Counting stocks or used goods in GDP. Only new production counts.
This week in the arena
Pick two days your resort ran this week. Compute the growth rate of your revenue between them, and write down the confidence and unemployment readings on each day. Did the economy move between those days, or only your resort?