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Macroeconomics

Macroeconomics. GDP and the Overall Health of the Economy. Macroeconomics Overall economy GDP Inflation Unemployment Recessions Expansion, Growth Aggregate Supply/Demand. Microeconomics Individual topics Business types Market structures Cost, revenue, profit Specific products

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Macroeconomics

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  1. Macroeconomics GDP and the Overall Health of the Economy

  2. Macroeconomics Overall economy GDP Inflation Unemployment Recessions Expansion, Growth Aggregate Supply/Demand Microeconomics Individual topics Business types Market structures Cost, revenue, profit Specific products Supply/Demand Pricing Macro vs. Micro

  3. Macro or Micro? • Jobless Rate Actually Stands at 11.5% • US Fiscal Path Unsustainable • AIG in $15.5 billion unit sale to MetLife • GM offers 661 dealers a second chance • New credit card rules' double standard • IPhone credit card swipe war heats up • Economist: No Risk for Inflation

  4. Macroeconomic Measurements • How do we know how healthy a country’s economy is? MEASURE IT • Major measurements: • GDP: Gross Domestic Product (output) • CPI: Consumer Price Index (inflation) • Unemployment rate

  5. GDP • Primary measurement of economy’s health • DOLLAR AMOUNT of all FINAL goods and services produced in a country’s BORDERS in a YEAR • Used to identify growth, recessions, depressions • Calculated by US Commerce Department

  6. What’s not included? • Intermediate products • The steel, tires, etc. in a new car • (Counted: You buy new tires for your car) • Secondhand sales • A used car • (Counted: The commission earned by salesman) • Nonmarket transactions • The chores you don’t get paid for at home • Underground economy • A sale of a stolen car

  7. What’s included? • Consumer sector (C) purchases • Government sector (G) purchases • Business investment (I) purchases • Foreign sector (Exports-Imports) (X-M) • GDP= C + G + I + (X-M)

  8. Problems with Using Prices? • What about inflation? • Need for a Price Index • Base Year (starting point) = 100% • Market basket • If year two is 150, then inflation rate is 50%

  9. Important Price Indices • Consumer Price Index (CPI) • 80,000 items in 362 categories • Bureau of Labor Statistics • Producer Price Index (PPI) • 100,000 input commodities • Implicit GDP Price Deflator • Turns Current GDP into Real GDP • Real (adjusted for inflation)

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