Welcome to Macroeconomics!

1. Welcome to Macroeconomics! Economics Fall Semester Mrs. Huff 1: Gross Domestic Product GDP

2. Macroeconomics Is. . . • The study of. . . • Economy-wide phenomena, including: • Inflation • Unemployment & • Economic Growth • To be able to analyze these phenomena we rely on several key indicators. • GDP • GNP • Inflation • Unemployment

3. Can an economy be “sick”?(And not your definition of sick!!) • How do we measure the health or illness of a person? • Combination of: • Quantitative Data • Temperature, blood work, etc. • Observable Behavior • You know it when you see it

4. Economic Indicators • Economists use “economic indicators” to assess a nation’s overall economic health. • www.economicindicators.gov • Indicators can be: • Leading • Lagging • One critique of indicators is that they give you a better picture of where you’ve gone, not necessarily where you’re heading.

5. How “big” is the economy? Is the economy growing? Is the economy on the “right” track?

6. Gross Domestic Product (GDP) • GDP is an economic indicator that measures a country’s total economic output. • Essential website: • www.bea.gov • Bureau of Economic Analysis • A steadily growing GDP is considered a sign of economic health.

7. “The market value. . . “ • MV is the price that buyers are willing to pay for a good in a competitive marketplace. • Includes goods and services. • “Of all final goods and services. . . “ • Final Good = any NEW good that is ready for use by a customer. • Intermediate goods – grains, steel, glass, etc. not counted in GDP. • * Only refers to goods that can be legally sold in a country. (Duh. )

8. “Produced within a country. . . “ • Must be produced within a country’s borders. • The firms do not necessarily have to be American owned. • Toyotas made in America are US GDP, not Japanese.

9. “During a given period of time. . .” • GDP is calculated quarterly. • (That means every 3 months.) • GDP is then also calculated annually to reference Jan 1 – Dec. 31 of that year. • Calculates goods manufactured during that calendar year. (Not necessarily sold.)

10. Components of GDP • C + I + G + NX = GDP • C = (Household) Consumption • I = (Business) Investment • G = Government Purchases • NX = Net Exports - imports

11. Components • Consumption • Spending by households on goods and services, with the exception of purchases of new housing. • Durable Goods • Automobiles, appliances. • Nondurable Goods • Food, as well as services. • Education • Investment • Spending on capital equipment, inventories, and structures, including household purchases of new housing. • Includes goods produced, but not yet sold.

12. Components • Government Purchases • Spending on goods and services by local, state and federal governments. • Transfer Payments ~ are not included. • Social Security benefits • Welfare benefits • Net Exports • Spending on domestically produced goods for foreigners (exports) minus spending on foreign goods by domestic residents (imports.)

13. GDP Data. . . Lots to do with this data! • GDP by Country • GDP by Annual Growth Rate • GDP per capita by Country 2010: The 10 Largest Economies

14. BRIC - Acronym

15. Random Applications of GDP • Countries with more resources, population, and money will do better as more funding is available. • It has been proven as a country modernizes, they will win more medals. • 2008 Summer Olympics by GDP ranking: • 1) Zimbabwe – 4 medals. 2008 GDP: $4.2 billionGDP per Medal: $1.05 billion per medal • 2) Mongolia – 4 medals. 2008 GDP: $5 billion.GDP per Medal: $1.25 billion per medal • 3) Jamaica- 11 medals. 2008 GDP: $15 billion.GDP per Medal: $1.4 billion per medal • 4) Armenia- 6 medals. 2008 GDP: $11 billion.GDP per Medal: $1.83 billion per medal • 5) Georgia- 6 medals. 2008 GDP: $13 billion.GDP per Medal: $2.16 billion per medal

16. More Olympics. . . • The Bottom: • - India is last, with one medal for $400 billion dollars.- Venezuela had one medal total, and a GDP of $332 billion.- Japan had a lot of medals (25) but a GDP of 5 trillion, for a GDP per medal of $200 billion per medal.- The United States had the most medals (110) but a GDP of 14 trillion. GDP per medals for United States: $129 billion- Israel, Austria, Mexico, South Africa and Egypt rounded out the bottom, ranging from 130 billion to 300 billion per medal.Surely, something interesting is going on here. Why do nine of the top ten countries have communist backgrounds? Why are the bottom countries the most capitalist ?

17. Other random uses of GDP

18. 2010 Semifinals: Germany Netherlands Spain Uruguay

19. What about inflation? Nominal GDP Real GDP • Measures output at today’s prices or “current dollars.” • Does not take into account inflation. • Measures the output of an economy in constant dollars. • Accounts for inflation.

20. Per Capita GDP • Accounts for population size. • A nation’s real GDP divided by its population. • An accepted measure of a society’s standard of living. • #1   Luxembourg: $89,563.63 per capita  2006  • # 2   Norway: $66,964.36 per capita  2006  • # 3   Iceland: $53,029.30 per capita  2006  • # 4   Ireland: $52,892.89 per capita  2006  • # 5   Qatar: $52,239.72 per capita  2005  • # 6   Switzerland: $51,032.66 per capita  2006  • # 7   Denmark: $50,702.00 per capita  2006  • # 8   United States: $44,155.00 per capita  2006  • # 9   Sweden: $42,553.49 per capita  2006  • # 10   Netherlands: $40,167.13 per capita  2006 

21. So. . . GDP is perfect? • 1) GDP leaves out unpaid household and volunteer work. • What would your mom or dad earn “just” for doing their parental jobs? • Let’s see. . . • 2) GDP ignores informal and illegal (gasp!) exchanges. • Informal economy – operates without government regulation • Occasional babysitters, lawn mowers, etc. • What about the “black market”?

22. 3) Negatives are positives? • Rebuilding after a hurricane = GDP boost, but standard of living has not improved. • 4) Ignores negative externalities • Doesn’t factor in air pollution, water contamination, etc.

23. 5) No value on leisure time • Is part of our S/O/L. • 6) Doesn’t deal with income distribution.

25. With increases in GDP comes. . . • An increased literacy rate

26. A decreased birth rate

27. An increased Life Expectancy

28. Decreased infant mortality

29. Human Development Index • The statistic is composed from data on: • life expectancy, • education and • per-capita GDP (as an indicator of standard of living) Darker Green – Higher GDP Red – Lower GDP

30. What about GNP? • Gross National Product (GNP) is the total income earned by a nation’s permanent residents “nationals.” • How does it differ? • It excludes: • When a Canadian works in the U.S., his production is part of GDP, but not GNP. • (Because it is part of Canadian GNP.)