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Chapter 13

Chapter 13. Macroeconomics Policies. Section 1. Measuring the Nation’s Output. GDP. -the dollar amount of all FINAL goods and services produced within a country’s borders in a year Extremely important for measuring economy’s economic performance. Computing GDP.

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Chapter 13

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  1. Chapter 13 Macroeconomics Policies

  2. Section 1 Measuring the Nation’s Output

  3. GDP • -the dollar amount of all FINAL goods and services produced within a country’s borders in a year • Extremely important for measuring economy’s economic performance

  4. Computing GDP • Multiply all of the final goods and services produced w/in a year by their prices and then add them up to get the total dollar value of production • Estimates are made quarterly (every 3 months) and it can take a while to figure out how the economy actually performed

  5. Let’s Do Some Practice…

  6. Check Your Answers… Dollar Value $120,000,000,000 $600,000,000 $2, 750,000,000 + $1,200,000,000 $4,500,000,000 $9,000,000,000 + $225,000,000,000 $1,500,000,000,000 $1,000,000,000,000 = Total GDP=________

  7. Total GDP? $9 Trillion

  8. Some Things Are Excluded • Underground Economy: • Unreported legal and illegal activities (Ex. Buying a purse from a trunk of a car) • Nonmarket Transactions: • Transactions that do not take place in the market (Ex. Maintaining your own house) • Secondhand Sales • The sales of used goods (Ex. Used cars) • Intermediate Products • Products used to make other products already counted in GDP (If you buy replacement tires, it counts. If you buy a new car, the tires on that car DO NOT count.)

  9. Is it or isn’t it?

  10. Limitations of GDP • Tells us nothing about composition of output. Growth is usually a good thing, but we have to look at where that growth occurs. • Tells us little about the quality of life or what the production is doing to the surrounding area.

  11. GNP-The Measure of National Income • GNP: the dollar value of all final goods, services, and structures produced in one year with labor and property supplied by a country’s residents • Based on GDP, but there are differences • GDP measures value of all goods and services, GNP measures the income of all Americans, whether the goods or services are produced in the US or not.

  12. http://www.youtube.com/watch?v=mZ-4eKreH3I

  13. To go from GDP to GNP, add all the payments that Americans receive from outside the US , then subtract all payments made to foreign-owned resources in the US.

  14. Disposable Personal Income • The total income the consumer sector has at its disposal after personal income taxes • Personal Income • The total amount of income going to consumers before the individual income taxes are subtracted • National Income • The income that is left after all taxes except the corporate profits tax are subtracted from NNP • Net National Product (NNP) • GNP less depreciation

  15. Economic Sectors and Circular Flows • Consumer Sector: households receive income in form of disposable income • Investment Sector: made up of bus. Organzations; their income is depreciation subtracted from GNP and retained earnings subtracted from NI • Government Sector: recevies income from all taxes, Social Security contributions • Foreign Sector: difference b/t the dollar value of goods sent abroad and the dollar value of goods purchased from abroad (X-M), or exports minus imports

  16. The Output-Expenditure Model • Used to show aggregate demand by the consumer, investment, government and foreign sectors • GDP=C+I+G+(X-M) • Expenditures of each of these added together

  17. US Debt Crisis • http://www.usdebtclock.org/http://www.youtube.com/watch?v=t79bvGF8PQg • http://www.tradingeconomics.com/united-states/gross-national-product • http://data.worldbank.org/indicator/NY.GDP.MKTP.CD • http://www.youtube.com/watch?v=t79bvGF8PQg • http://www.youtube.com/watch?v=Jjv-MtGpj2U

  18. Section 2 GDP and Changes in the Price Level

  19. Inflation • Inflation: a rise in the general price level

  20. Constructing a Price Index • Used to remove distortions of inflation • Measures changes in prices over time • Market Basket: a representative of commonly purchased goods and services • Price Index= Price Current • Price Base

  21. Major Price Indicies • Consumer Price Index (CPI): index used to measure price changes for a market basket of consumer items • Producer Price Index (PPI): index used to measure prices received by domestic producers • Price Deflator: index of average levels of prices for all goods and services in the economy • Current GDP (Nominal GDP) • Real GDP

  22. Real vs. Current GDP • Current GDP: not adjusted for inflation • Real GPD: Adjusted for inflation • Real GDP= Current GDP • Price Deflator (Price Index)

  23. Section 3 Use Guided Reading for Notes and videos on the following slide

  24. Videos that go with Section 3 • Ted Talks: http://www.youtube.com/watch?v=fTznEIZRkLg • Baby Boom: http://www.youtube.com/watch?v=6vi3NFt7pOc • Center of Population: • http://www.youtube.com/watch?v=NWNBlTyk88o • Video on China GDP and Population: • http://www.youtube.com/watch?v=5hi0lSuICCQ • Historical Movement of US Population: • http://www.youtube.com/watch?v=YmvNd9nVyWs • Ethnic Make-Up Changing in USA • http://www.today.com/video/today/52202626#52202626

  25. Section 4 Economic Growth

  26. Economic Growth in the U.S.A. • Measuring Growth: • Short Run: real GDP • Long run: real GDP per capita; more accurate b/c it accounts for both inflation and population (divide real GDP by population)

  27. Importance of Economic Growth • Can Help other nations: • Can increase our demand for foreign products, which can help create jobs in those places, which can increase their demand of American products • Domestic problems • Can help create more jobs and thus helps people afford more necessities • Government Spending • Enlarges the tax base • Standard of Living • Increases real GDP per capita, so can better standard of living on individual basis

  28. Global Role Model? • It depends on who you ask • In theory, we serve as a model for the free-market system.

  29. Factors Influencing Economic Growth • Land: pretty self-sustainable; have to import some things; have to worry about conservation • Capital: need high quality capital • Labor: need skilled and growing work force • Entrepreneurs: key to economic growth; need innovators and risk takers

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