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The Data of Macroeconomics

The Data of Macroeconomics. Measuring a Nation’s Income . Micro and Macroeconomics. Macroeconomics is the study of the economy as a whole. Its goal is to explain the economic changes that affect many households, firms, and markets at once.

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The Data of Macroeconomics

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  1. The Data of Macroeconomics Measuring a Nation’s Income

  2. Micro and Macroeconomics • Macroeconomics is the study of the economy as a whole. Its goal is to explain the economic changes that affect many households, firms, and markets at once. • Microeconomics is the study of how individual households and firms make decisions and how they interact with one another in markets. • Macroeconomics concerns the workings of the entire economy. • Microeconomics and macroeconomics are closely linked.

  3. The Circular-Flow Diagram Product Market $ $ Businesses Households $ $ Market for Factors of Production

  4. Measuring the nation’s income • Gross Domestic Productis the total market value of all final goods and services produced during a given period of time within a country, region, or province. • Gross National Product is the total market value of all final goods and services produced during a given period of time by the nation’s residents, regardless of the place produced.

  5. Measuring the nation’s income • Important Features of GDP • Output is valued at market-determined prices. • Output is measured in dollar terms. • GDP records only the output of final goods. • Represents the amount of money one would need to purchase a year’s worth of the economy’s production of all final goods. • GDP includes all items produced in the economy and sold legally in markets. • GDP does not include items produced and consumed at home that never enter the marketplace.

  6. Measuring the Income of an Economy • GDP can be measured using any of the three approaches: • Expenditure Method • Income Method • Value added Method • Total production=Total expenditure= Total income is an identity

  7. Expenditure Method • GDP for a given year is calculated by adding up the expenditures needed to purchase the final output of goods and services (final demand) produced in that year • Consumption exp • Investment exp • Govt purchases of goods and services • Net exports

  8. Income Method • GDP for a given year is calculated by adding up the factor incomes and other claims generated by the act of production • All of the value produced is owned by someone. Therefore value of production= value of income claims generated by that production • Factor payments (Wages, rent, interest, and profits) • Nonfactor payments • Indirect taxes net of subsidies • Depreciation

  9. Value Added Method • GDP for a given year is calculated by summing all values added in the economy. • Value added is a measure of each firm’s contribution to total output, ie., the amount of market value produced (added) by that firm. • VA by a firm= Value of the firm’s output- Value of inputs purchased from other firms • It avoids the statistical problem of double counting.

  10. Measuring the nation’s income GDP (Y) is the sum of: • Consumption (C) • Investment (I) • Government Purchases (G) • Net Exports (NX) • Y = C + I + G + NX • GDP Per Persontells us the income and expenditure of the average person in the economy.

  11. Real versus Nominal GDP • Nominal GDP is the market value of the economy’s current production • Real GDP measures any given year’s total output in “constant” prices. • An accurate view of the economy requires adjusting nominal to real GDP, using the GDP Price Deflator.

  12. GDPComponents of Measurement Government Purchases 21% Net Exports 5% Investment 17% Consumption 57%

  13. Measuring the nation’s income • Three Other Measures of Income • Net National Product (NNP):Total income of residents of a nation after subtracting capital consumption allowances. • Personal Income:The income that households and non-corporate businesses receive. • Disposable Personal Income: The income that households and non-corporate businesses have left after taxes.

  14. Economic Indicators for Canada

  15. GDP and Economic Well-Being • It is a good measure of the material well-being of the economy as a whole as it is a good measure of the economic activity and economic opportunities. • There is an association between higher income and better standards of living. • GDP does not measure quality of life such as leisure, quality environment, and the value of activity that takes place outside of the markets • International comparisons of a countries’ living standards using GDP should be treated cautiously (unreported and non-marketed activities in poor countries is high)

  16. Growth in Canada's Real GDP

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