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Unit 3

Unit 3. Macroeconomic s. Macroeconomics: the branch of economics that deals with the economy as a whole , including employment, gross domestic product, inflation, economic growth and the distribution of income.

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Unit 3

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  1. Unit 3 Macroeconomics

  2. Macroeconomics: the branch of economics that deals with the economy as a whole, including employment, gross domestic product, inflation, economic growth and the distribution of income.

  3. Gross Domestic Product: The dollar value of all final goods and services produced within a nation’s borders in one year.

  4. GDP excludes certain items: 1. Intermediate goods: products used to make other products. These require further processing before being sold to the final consumer.

  5. 2. Secondhand Sales: Sales of used goods.

  6. 3. Nonmarket Transactions: work done for which no money is paid such as mowing your own yard, house cleaning or other home improvements.

  7. 4. Underground Economy: unreported legal and illegal activities.

  8. 5. Financial Transactions: money paid for stocks, bonds and other financial assets. This also includes mergers and transfer payments.

  9. Gross National Product: The dollar value of all final goods and services, and structures produced in one year with labor and property supplied by a nation’s residents.

  10. To go from GDP to GNP it is necessary to add all payments that Americans receive from outside the U.S., and then subtract all payments made to foreign owned resources in the U.S.

  11. Output-Expenditure Model: a macro model used to show aggregate demand by consumers, businesses, government, and foreign sector. Aggregate demand= total spending.

  12. C = Consumer spending by households. I = Investment spending by businesses. G= Government spending, federal, state, and local. X= Exports or goods sold abroad. M= Imports or goods purchased from abroad.

  13. (X-M) = Net Exports can also be denoted using an (F). If (X-M) is positive, we have a trade surplus meaning we export more than we import. If (X-M) is negative, we have a trade deficit meaning we import more than we export.

  14. GDP = C + I + G + (X-M) or GDP = C + I + G + F

  15. GDP= C+I+G+NX Which category from the above equation accounts for the greatest percentage of GDP in our country? A. C B. I C. G D. NX

  16. Inflation: a rise in the general/average price level. To remove distortions of inflation on GDP economists must construct a price index.

  17. Price Index: a statistical series used to measure changes in prices over time, or more simply, it is a ratio of 2 prices. Base Year: a year that serves as the basis of comparison for all other years. Market Basket: a representative selection of commonly purchased goods and services by urban consumers.

  18. Major Price Indices • Consumer Price Index (CPI): reports on price changes for about 80,000 items in 364 categories used by a typical household. • It is used to calculate the rate of inflation in the economy.

  19. 2. Producer Price Index (PPI): measures price changes paid by domestic firms for their inputs. It can be a good indicator of inflation at the consumer level down the road.

  20. 3. Implicit GDP Price Deflator: an index of the average levels of prices for all goods/services in the economy. This is the most complete measure of inflation in the economy.

  21. Current/Nominal GDP: is GDP that has not been adjusted for inflation. Real/Constant GDP: GDP that has beenadjusted for inflation. Real GDP = Current/nominal GDP ÷ Price Index × 100

  22. There are 2 ways to measure economic growth. Remember economic growth is the ability to produce more goods and services over time. • Changes in real GDP from 1 year to another. (Best short term measure) • Changes in real GDP per capita which is real GDP divided by population. (Best long term measure)

  23. GDP % growth rates per Quarter

  24. GDP per capita for 2012 1 Qatar $ 102,800 2 Liechtenstein $ 89,400 3 Bermuda $ 86,000 4 Macau $ 82,400 5 Luxembourg $ 80,700 6 Monaco $ 70,700 7 Singapore $ 60,900 8 Jersey $ 57,000 9 Falkland Islands (Islas Malvinas) $ 55,400 10 Norway $ 55,300 11 Switzerland $ 54,600 12 Isle of Man $ 53,800 13 Hong Kong $ 50,700 14 Brunei $ 50,500 15 United States $ 49,800

  25. Improvements in real GDP per capita indicate an improved standard of living and can be easily compared from 1 nation to another. Economic growth is the result of more resources and/or better quality resources such as improvements in education and labor productivity.

  26. Economists use numbers such as those in the table as a measure of A. Standard of living B. Total dollar value of all final goods and services C. Net Exports D. Net Imports

  27. Business Cycle: the systematic ups and downs in real GDP.

  28. Phases • Recession: a period during which real GDP declines for a minimum of 6 months.

  29. 2. Trough: the turnaround point where real GDP stops going down.

  30. 3. Expansion: a period of recovery from recession where real GDP is rising.

  31. 4. Peak: the point where real GDP stops going up.

  32. Trend Line: shows the long run growth in real GDP. It’s a process of two steps forward and one step back.

  33. Depression: a state of the economy with large numbers of people out of work, acute shortages, and excess capacity in manufacturing plants.

  34. Index of Leading Indicators: a monthly statistical series that usually turns down before real GDP turns down, and turns up before real GDP turns up. It’s like trying to forecast where the economy is headed in the future.

  35. Unemployment Rate: the number of unemployed people looking for work divided by the total number of persons in the civilian labor force.

  36. UR = # unemployed but looking ÷ civilian labor force × 100 = %

  37. Civilian Labor Force: those 16 years and older who are currently working or looking for work.

  38. Employment-population ratio measures the percent of the U.S. adult population that has a job.CNNMoney 10/18/12.

  39. When the president entered office on Jan. 20, 2009, the economy was issue No. 1. It still is today. Monthly Payrolls:

  40. The Unemployment Rate under President Obama,cnnmoney10/18/12.

  41. Criticisms of UR: • Discouraged workers: People who have become frustrated with looking for a job and quit looking. This tends to understate the actual rate of unemployment.

  42. 2. Part time workers: These workers are counted the same as full time workers. Again, this tends to understate the true rate of unemployment.

  43. Kinds of Unemployment • Frictional Unemployment: workers who are between jobs for one reason or another. Also called search and wait unemployment.

  44. Structural Unemployment: this is unemployment caused when a fundamental change in the economy reduces the demand for workers and their skills. This if often caused by changes in technology, called automation.

  45. Cyclical Unemployment: this is unemployment related to swings in the business cycle, caused by a recession.

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