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Unit IV: Macroeconomics Policies

Unit IV: Macroeconomics Policies. pp. 338-456. Chapter 13 Economic Performance Section 1 p. 340. Gross Domestic Product 341 aka: GDP The dollar amount of all final goods and services produced in a single year Within a nation’s borders.

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Unit IV: Macroeconomics Policies

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  1. Unit IV: Macroeconomics Policies pp. 338-456

  2. Chapter 13 Economic Performance Section 1 p. 340 • Gross Domestic Product • 341 aka: GDP • The dollar amount of all final goods and services produced in a single year • Within a nation’s borders. • A major indicator for economists and governments of how their economies are doing.

  3. National income accounting • 341 a system of statistics and accounts that keeps track of • Production • Saving • Consumption • Investment • US: the National Income and Products Accounts (NIPA) are kept by the US Bureau of Economic Analysis (BEA) • Part of the US Department of Commerce

  4. Intermediate products • 343 products used to make other products already counted in GDP • Not counted in GDP • Tires purchased with a new car • Only value of car is counted • Flour used by a bakery to make bread • Only value of bread is counted

  5. Secondhand sales • 343 merchandising used goods • Not counted in GDP • Personal sales at home/yard sales • Flea markets • Used car • Any sale of a house after initial purchase • Used clothes • Thrift shops • Etc.

  6. Nonmarket transactions • 343 do not happen in a market. • Not counted in GDP • Neighbor baby sitter • Lawn mowing • homemaking

  7. Underground economy • 343 aka: “black market” • Not reported in GDP • Selling stolen goods • Smuggling • Illegal gambling • Prostitution • Illegal drugs • counterfieting

  8. Gross National Product • 344 the dollar amount of all final goods and services and structures produced in one year • Labor and property supplied by the country’s residents. • Includes GDP • Also includes imports • Another important measure of economic productivity.

  9. Net National Product • 344 GNP minus depreciation • subtracts capital equipment that is over 1 year old • Another economic measure

  10. National income • 345 income that is left after all taxes are subtracted from NNP • Excise tax • Property tax • Licensing fees • Customs duties • General sales tax • Except corporate profit tax • Another economic measure

  11. Personal income • 345 Another economic measure. • total amount of income going to consumers • Before individual income taxes are subtracted. • Adjustments include: • Income that does not go to the consumer • Corporate income taxes • SSI (FICA) contributions • Transfer payments are added in— • Unemployment insurance • SSI • Medicaid • Other public assistance

  12. Disposable personal income • 346 aka “DI” • Total income the consumer sector has at its disposal AFTER income taxes • “amount people have available to spend”

  13. Household • 346 all the persons who occupy (reside) in a living quarters: • House • Apartment • Etc. • Head • Family • Lodgers • Live-in employees

  14. Unrelated individual • 346 a person who lives alone even though he/she may have family living elsewhere.

  15. Family • 346 a group of two or more persons living together • related by • blood, • marriage, • adoption

  16. C • 346 formula symbol for the consumer sector of the economy • Income of • Households • Family • Unrelated individuals

  17. Output-expenditure model • 348 Shows the aggregate demand by the • Consumer sector • Investment/business sector • Government sector • Foreign sector • The formula: GDP = C + I + G + (X-M)

  18. Net export of goods and services • 348 refers to the difference between the US’ exports and imports. • Note: This also helps determine balance of trade

  19. Section 2 p. 350 Terms: • Inflation • 350 a rise in the general price level • Note: a weakening of the buying power of a currency. • Inflation must be considered when measuring the economy because it distorts the results (does not give an accurate measure)

  20. Inflation

  21. What is behind rising inflation?The Economist, 1/25/2011 • AS THE world economy has recovered, fast-growing emerging economies such as China and India have struggled to keep a lid on consumer prices, • while stagnating developed countries have faced low inflation rates. • Recently, however, rich-country inflation has also started creeping up: • in December Britain’s consumer-price index hit 3.7%, • while euro-zone inflation also rose above the ECB's target. • Much of the blame has been put on the increase in commodity prices. • But the impact on consumers differs widely between countries.  • A larger share of income is spent on food in poorer countries such as China (33%) and India (46%), so the rise in global food prices is the main driver of inflation there.  • By contrast, pricier energy is a bigger factor in the rich world, although it forms a relatively small component of consumer spending. • For more detail, see article.

  22. Comparing Food/Energy Spending Ratios

  23. Price index • 351 statistical series that can be used to measure changes in prices over time. • Helps exclude inflation

  24. Base year • 351 the year that all other years will be compared to • Price index will use a base year to measure progress or decline in later years.

  25. Market basket • 351 representative selection of commonly purchased goods and services • Note: • Automobile • Tires • Shoes • Haircuts • Legal advice • Movie tickets • Meat • Milk • Bread • Carrots • Lettuce • Etc.

  26. Consumer Price Index • 352 reports on price changes for about 80,000 items in 364 categories • 85 geographically distributed areas of the US • Compared to base year of 1982-84 • Bureau of Labor Statistics • CPI

  27. Producer Price Index • 352 price changes paid by domestic businesses/industries for their inputs. • PPI

  28. Implicit GDP price deflator • 353 An index of average levels of prices for all goods and services in the economy • Computed quarterly • Base year of 1996 • Covers thousands of items • Good long-run indicator

  29. Current GDP • 353 this year’s GDP • Real GDP (GDP in constant dollars) • Current GDP minus inflation • Formula: Real GDP = GDP in current dollars Implicit GDP price deflator x 100

  30. Hwk Assessments, Class Work, to Know

  31. Assessments: Section 1, Checking for Understanding • 1 • GDP • the dollar amount of all final goods and services produced within a country’s national borders • In a year • GNP • is the dollar value of all final goods, services, and structures produced within national boundaries, produced with labor and property supplied by a country’s residents. • In a year

  32. Assessments: Section 2, Checking for Understanding • 1 • No, if adjustments are made for population growth, the rates would be the same.

  33. 3 • Representative of purchases

  34. 4 • Consumer price index • Producer price index • Implicit GDP price deflator

  35. 5 • Current GDP is the GDP not adjusted for inflation • When the distortions of inflation are removed, it is called “real GDP”

  36. 6 Image, p. 342 • Question • Quantity multiplied by price per unit

  37. 6 Image, p. 343 • Question • Illegal activities • Gambling • Smuggling • Prostitution • Some legal activities not reported to avoid taxes.

  38. 6 Image, p. 345 • Question • GDP does not count • Payments US citizens receive from outside the country • GDP does count • Payments made to a foreign-owned resource employed in the US

  39. I • 346 formula symbol for the investment/business sector of the economy • Proprietorships • Partnerships • Corporations • They are the producers

  40. G • 347 formula symbol for government sector of the economy • All levels • Federal • State • Local • Collected tax revenues are counted as its income

  41. X-M • 348 formula symbol for the foreign sector of the economy

  42. 6 Image, p. 347 • Question • Personal consumption expenditures • Government purchases of goods and services • Investment expenditures

  43. 12 Image, p. 351 • Question • 351 inflation has changed the price per unit of each item

  44. 12 Image, p. 352 • Question • Subtract the price of the market basket for the base year from the price of the new market basket. • Divide the difference by the market basket price for the base period • The percentage is the change of the new market basket in relation to the base-period market basket.

  45. 12 Image, p. 353 • Questions • 1 • From 1975 to 1976 • 2 • The 1990s • Because from 1995 and on, growth consistently increased

  46. 12 Image, p. 354 • Question • Convert current dollar amounts to real dollars by • Dividing the current dollar amount by the implicit GDP price deflator for that period • Multiply that number by 100

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