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Macroeconomics. By: Mr. Skinner. Macroeconomic Cartoons. Macroeconomics: The study of behavior and decision making of entire economies. National Income and Product Accounts. National Income Accounting: A system that collects statistics on production, income, investment, and savings.
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Macroeconomics By: Mr. Skinner
Macroeconomic Cartoons Macroeconomics: The study of behavior and decision making of entire economies.
National Income and Product Accounts • National Income Accounting: A system that collects statistics on production, income, investment, and savings. • This is macroeconomic data monitored by economist and presented in the form of NIPA (national income and product accounts). • It is maintained by the U.S. Department of Commerce and used to determine policies.
Gross Domestic Product (GDP) • GDP: The dollar value of all final goods and services produced within a country’s borders in a given year.
GDP • Final Goods and Services: Products in the form sold to consumers. • Intermediate Goods: Goods used in the production of final goods.
Methods of Calculating GDP • Expenditure Approach: Estimates amounts spent on four categories. • Consumer goods and services • Business goods and services • Government goods and services • Net exports or imports of goods and services • Then add together totals from all four categories to get GDP.
Expenditure Approach • Economy’s entire output is apples and oranges. • This year the economy produces: 3. The economy’s GDP for this year is_____. $700 1 apple at $100 each 3 oranges at $200 each
Income Approach • Income Approach: Calculates GDP by adding up all the incomes in the economy. Take the income of all these separate individuals and add them together to get GDP using the Income Approach. Ideally it equals the same total as if you used the Expenditure Approach. Often a combination of both methods are used and compared to get the best total for GDP.
Nominal Versus Real GDP • Nominal GDP: GDP calculated in current prices. • Real GDP: GDP expressed in constant, or unchanging prices.
Nominal Versus Real GDP • Real GDP basically allows you to account for inflation, or gradual price increase over time. • By calculating using the price averages from a constant year we are able to see if GDP has actually risen, or if instead only prices have risen. Gas Prices Today Gas Prices 1957
Limitations of GDP • GDP is not perfect because it does not take into account certain economic activities such as:
Limitations of GDP • Non-Market Activities: GDP does not measure goods or services that people do themselves. • Examples caring for children, cooking meals, washing the car. • GDP does rise if you pay others for these services.
Limitations of GDP • Underground Economy: A large amount of production and income is never reported to the government. • Examples: illegal goods, gambling incomes, or under the table wages. • Also some legal activities such as selling a car to a friend, or hiring baby sitters also go unreported.
Limitations of GDP • Negative Externalities: Unintended economic side effects, or externalities, have a monetary value that often is not reflected in GDP. • Example: Power plant spends money to reduce pollution. Value of cleaner environment not calculated in GDP.
Limitations of GDP • Quality of Life: GDP measures output and income within an economy, not individuals’ quality of life. • Examples: Not easy to put a price on leisure time, personal safety, or pleasant surroundings.
Other Income and Output Measures • Gross National Product: The annual income earned by U.S. owned firms and U.S. citizens.
Other Income and Output Measures • CHART ON PAGE 312…..LOOK AT IT!!!!!!!!!! • Net National Product: Is the output made after the adjustment for depreciation of capital equipment. • National Income: The total left from NNP after subtracting sales and excise takes and making some other minor adjustments.
Other Income and Output Measures • Personal Income: Take national income and subtract firms’ reinvested profits, firms’ income taxes, and Social Security taxes, then add other household income for your total. • Disposable Personal Income: Take personal income and subtract individual income tax, what is left is your disposable income, or the amount people actually have to spend.
Influences on GDP • Aggregate Supply: The total amount of goods and services in the economy available at all possible price levels. • It is the supply curve for the whole economy. • Price Level: The average of all prices in the economy. • Pg. 313 Graphs
Influences on GDP • Aggregate Demand: The amount of goods and services in the economy that will be purchased at all possible price levels. • Any shift in aggregate supply or demand will have an impact on real GDP.
Business Cycles Chapter 12 Section 2
Business Cycles A period of macro-economic expansion followed by a period of contraction.
Phases of a Business Cycle Expansion: period of growth, real GDP ↑ Peak: point where real GDP stops rising Contraction: period of decline real GDP ↓ Trough: point where real GDP stops falling
Phases of a Business Cycle Recession: a prolonged economic contraction (at least 6 straight months of falling GDP, lasting up to 18 months) Depression: an especially long and severe recession ( longer than 18 months)
Stagflation This is a decline in real GDP combined with a rise in the price level
What Keeps Business Cycles Going? Business Investment Interest Rates and Credit Consumer Expectations External Shocks
Business Cycle Forecasting Leading indicators: key economic variables that economists use to predict a new phase of a business cycle
Business Cycles in American History • The Great Depression: 1929-1939 • John Maynard Keynes’s The General Theory of Employment, Interest, and Money (1936) • 1970s oil embargo by OPEC (external shock)
