Macroeconomics IB 2.1

2 sector Circular Flow of Income

2 sector Circular Flow of Income

2 sector Circular Flow of Income

Factors Provided by Households Provided by firms(business) Capital Entrepreneurship Land Labor Provided by firms(business) Interest Profits Rent Wages

2 sector model Too simplistic Injections Leakages Transfer payments Foreign investment Return on investment (stocks etc) Leakages Imports Saving Taxes

3 Sector Circular Flow

3 sector Circular Flow (b)

4 Sector Circular Flow Transfer payments Build model out from 2-5

4 sector, less complicated

4 sectors… Households Firms Government Financial Markets… BUT WAIT…

5 sector Circular Flow

6 Sector Circular Flow JUST KIDDING

Moniac Machine

4 Sector Circular Flow Model ECONOMY SEEKS EQUILIBRIUM

Measurement of National Income Income Method Output Method Expenditure Method PROBLEMS Year to year - informal sector Flawed data - masks health of country

Interconnectedness

GNI GDP v GNP v GNI Using numbers, “objectively” applied Most common - Gross Domestic Product or Gross National Product Difference: GDP - sum total of everything bought or sold in borders GNP - sum total of national industries’ products bought or sold wherever in the world… GNP = GDP + net property income from abroad NOW we use GNI. (Gross National Income) (basically GNP with sales tax/VAT taken off the total) GNI

GDP math C + G + I + (X-M) C= Consumption G = Government Spending I= Business Investment (X-M) = Exports - Imports http://www.data360.org/pub_dp_report.aspx?Data_Plot_Id=768

Parts to GDP http://www.indexmundi.com/facts/visualizations/gdp-composition-by-sector/#country=at:ma

What is counted and not Counted Not Counted New services & goods Finished products Real things and real service Not Counted Used goods Primary goods used to manufacture finished goods Purely Financial Transactions

Richest countries http://www.nationmaster.com/graph/eco_gdp_percap-economy-gdp-per-capita

US States GDP as compared to nations

Net National Product Assets lose value over time So. NNP = GNP- depreciation

Other Measurements NI PI DPI

GDP/GNI can be expressed in different ways Nominal GDP/GNI Real GDP/GNI Per capita GDP/GNI Purchasing Power Parity (PPP)

Nominal v Real Prices go up most years so how to compare year to year? Real GDP = GDP expressed in “chained” dollars for inflation GDP Deflator http://measuringworth.com/usgdp/ http://www.indexmundi.com/g/r.aspx?v=71 and the Inflation Calculator

China GDP Growth since 1998

Growth in real GDP

Per Capita GDP GDP divided by population China – 7.3 Trillion (#2) US -15 Trillion (#1) http://www.worldatlas.com/aatlas/populations/ctypopls.htm http://virtual.mjc.edu/rlamont/Aplia%20hints/gdp%20calculations.htm China – 8,400 (#94) US – 48,100 (#8)

Per Capita GDP GDP divided by population US 14.2 T Eurozone 12.4 T Japan 5 T* China 4.9 T* France 2.6 T UK 2.1 T Canada 1.3 T India 1.2 T Phillipines 160 B Morocco 90 B http://www.worldatlas.com/aatlas/populations/ctypopls.htm

Original World Mapper

Per Capita GDP 2000 years ago

Nominal GDP in 2015

Countries experiencing GDP decline - %

Growth in GDP http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=tsdec100

Growth http://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG/countries?display=graph

Stocks and GDP Per cap

Purchasing Power Parity (PPP) Per capita still doesn’t give a clear picture One US Dollar buys one tomato in US In Morocco .07 cents buys one tomato So adjust the per capita (in dollars) to account for how far one dollar goes Zimbabwe, Morocco, Luxemburg http://www.oanda.com/products/bigmac/bigmac.shtml

Percent living on $1 a day

The Wretched Dollar

PPP <$10 a day

PPP per capita

GDP vs PPP

Big Mac Index

2012

So…… GDP Per Capita PPP Nationmaster says GDP (per cap) PPP http://www.nationmaster.com/graph/eco_gdp_ppp_percap-economy-gdp-ppp-per-capita

The G’s G7 (8) G20 G77

G 77 (actually 132 countries)

GDP measures what? GDP can grow due to bad events: Natural disasters War Crime Health epidemics And misses informal sector So we have another measurement GPI (Genuine Progress Indicator)

Genuine Progress Indicator

IN US

The Hidden Economy % of GDP hidden Greece -28.2% Italy - 25.7% Norway -18.4% Canada - 15.2% USA -8.4%

Next slide stolen from AnimationEconomics.com

U.S. Underground Economy What doesn’t get reported Illegal $300 B Legal $600 B Drugs $120 Bribery $35 Self Employed $255 Gambling and Loan Sharking $10 Other Legal $25 Rents & Royalties $30 Pornography $20 Fraud $30 Corporate Profits $50 Other Illegal $20 Prostitution $30 Interest $55 Stolen Goods $35 Wages and Salaries $185 What gets reported is the “Above Ground” What doesn’t get reported is the “Underground”

Drawbacks to using GDP Accuracy Informal Sector Hidden Economy “I’m getting $1,000 to kill you, Ziggy, but unfortunately it will not count in GDP.” Accuracy Informal Sector Hidden Economy Does not count unpaid work Neglects externalities aka The Green GDP High GDP does not equal good times

Pick an OECD Country

Measuring Development Big Picture: Ranking of several areas and averaging Most common Human Development Index Education Health Income OLD Adult Literacy rate NEW: School Years Life expectancy GDP per capita on PPP basis

HDI Top score = 10 High = over 8.0 Middle = 5.0 -7.99 Low = under 4.99

Human Development Index

Faults of HDI Accuracy (again) Misses gap between rich and poor Ignores discrepancy between men and women Creation of Gender-related Development Index (GDI) And Human Poverty Index -1 and HPI-2

HDI(Bono flv) Country Rank of HDI HDI can differ from GDP stats Remember high GDP does not always equal “livability” and HDI measures more than just income.

HDI

Other ways to measure Bhutan Happiness Index Other maps

Sidebar: Does HDI=Happiness?

Happiness scores http://en.wikipedia.org/wiki/Happy_Planet_Index

http://strangemaps.wordpress.com/

Definitions Downturn Recession Depression

Unemployment US 9.9% now 7.9 EU now 11.7% Morocco 8.7% Panama 4.00% Spain 26% France 10% Netherlands 7% Morocco 8.7% Panama 4.00%