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Macroeconomics

Macroeconomics . The study of the entire economy. Used to predict economic performance by looking at the past and current performance of the economy. . In order to do this:. Measurements called NIPAs are used

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Macroeconomics

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  1. Macroeconomics The study of the entire economy. Used to predict economic performance by looking at the past and current performance of the economy.

  2. In order to do this: • Measurements called NIPAs are used • National Income and Product Accounts track the following items in the nations economy • Production • Income • Consumption • The tracking process is called National Income Accounting is measured in dollars • Provides information about the nations economic activities

  3. The amount of money in the economy is controlled by the Federal Reserve. When deciding how much money to allow into the economy, the FED looks at economic indicators.

  4. What are some of these economic indicators? • GDP= Gross Domestic Product (GNP) • NNP= Net National Product • NI = National Income • PI = Personal Income • DI = Disposable Income • CPI = Consumer Price Index • PPI = Producer Price Index • Inflation • Businesses Cycle

  5. GDP = Gross Domestic Product • Is the total dollar value of all final goods and services produced within a country during 1 calendar year • Measures total production (output) • Does not include used cars or second-hand clothing

  6. Real GDP v. Nominal GDP • Nominal GDP: current GDP, expressed in current prices of the period being measured • Real GDP: adjusted for the price changes, allows economists to determine if production increased or decreased, regardless of the changes in the purchasing power of the U.S. dollar

  7. Limitations of the GDP • It is not an entirely accurate measure of output and economic growth for the following reasons: 1. Gathering necessary data to calculate GDP is slow and time-consuming. Initial GDP figures are often inaccurate, and the Commerce Department often has to issue revised figures. 2. GDP only measures market transactions – exchanges of goods and services for money that are recorded in the marketplace. This does not include nonmarket activities- transactions that do not involve money and are not recorded

  8. Limitations of the GDP 3. Underground economic activity not included in GDP: illegal and unreported legal activities 4. Imperfect indicator of economic growth in a nation and overall wellbeing. The value of many “goods” (things that make the society better) and the detriment of many “bads” (things that make society worse) are not recorded.

  9. GNP = Gross National Product • Was used until 1991 by the Commerce Department to measure economic growth • Measures the total dollar value of all final output produced with factors of production owned by residents of a country. • UN and most countries used GDP, so U.S. switched, making international economic comparisons easier

  10. NNP= Net National Product • GDP includes money invested in capital goods • Investment includes money spent on replacing defective or outdated equipment and machinery • When this is subtracted from the GNP = NNP • Does not include investment spent to maintain current equipment: more representative of nation’s actual output of new goods and services in a year

  11. NI = National Income • Determines total income paid to the owners of a nation’s factors of production • Sum of employees’ and proprietors’ income, real and estimated rental income, corporate profits, and net interest • Calculated by subtracting subsides and indirect taxes ( taxes included in final price of goods and services) from net national product.

  12. PI= Personal Income • Total amount of income earned by people in a given nation • Subtract from national income all income that does not go to people (taxes, money reinvested) • Add money individuals receive from government transfer payments

  13. DPI= Disposable Personal Income • The total amount of income available to a nation’s people to spend or save • Subtract personal taxes (income, estate, gift, property, motor vehicle) and nontax payments (fines/passports) from personal income.

  14. GDP Activity Final Goods and Services Who would purchase these things? C Consumers – household purchases of consumer goods and services I Investments – purchases of businesses of capital goods, such as factories, tools etc. G Governments – government purchases of goods and services • Manicures • Bread • Cruise missiles • New Factory • Dresses • Increase in automobile inventory

  15. Pepperonia v. Anchovia • Each student will get a Final Good or Service • First determine which category you fall under • C, G or I • Second add how many “parms” (dollars) are made under each category • Third calculate your countries GDP • C+G+I=GDP • Forth calculate each component’s percentage share of total GDP • Fifth as a group create a pie chart using the percentages gathered from step 4. Each category should be represented by a different color.

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