Macroeconomics

4 factors of Analysis Economic Growth Employment Price Stability Income distribution

Circular Flow of income Two Sector model

the four-sector model Income if leakages = injections---> Households Savings investments Imports Income Exports Income Expenditure Taxes Government Spending Firms Leakages Injections if leakages = injections---> the economy is at equilibrium

Gross Domestic Product (GDP)

Calculating GDP Output method The total value of all final goods and services produces in an economy in a year Output method

The total amount of income earned in an economy. Calculating GDP The total amount of income earned in an economy. income method

The Total value of all spending in the economy Calculating GDP The Total value of all spending in the economy Expenditure method

GDP GDP=C+I+G+(X-M) Consumer Expenditures + Investments + Government Spending (Exports – Imports) it is clear our nation is reliant on big foreign oil. ... it is clear our nation is reliant on big foreign oil. ...

World Population

GDP

Gross National Product (GNP) GNP counts all income earned by an economy’s factors of production regardless of where they are located. An American company operating in Canada would count towards the United States’ GNP but not its GDP

GDP/GNP/NNP GDP=C+I+G+(X-M) GNP=GDP+net property income from abroad NNP (Net National Product)=GNP-depreciation Depreciation is the amount of capital consumption or the “used up” capital.

GDP figures are difficult to prove accuracy and difficult to draw provable conclusions

What is Development?

Human Development Index healthy life, education, and standard of living are quantified and calculated. Life expectancy at birth, Adult Literacy rate, and GDP per capita.

HDI a numerical value between 0 and 1 .800 and higher--> High Human Development .500-.799--> Medium Human Development Less than .500--> Low Human Development HDI became popular around 1990 before that it was generally based on GDP per capita

HDI chart 1 Norway 0.971 2 Australia 0.970 3 Iceland 0.969 ... 13 USA 0.956 14 Austria 0.955 39 Bahrain 0.895 40 Estonia 0.883 ...83 ...Lebenon ...0.803

HDI chart 84 Armenia 0.798 85 Ukraine 0.796 ...91 ...China ...0.772 ...122 ...Guatamala 0.704 123 Egypt 0.703 ...158 Nigeria 0.511 159 Togo 0.499 ...181 Afganistan 0.352 182 Niger 0.340

Gender Development Index (GDI) Gender Empowerment Measure (GEM) Also Gender Development Index (GDI) Gender Empowerment Measure (GEM) Human Poverty Index (HPI) Lorenz Curve and Gini Index Lorenz Curve for country ‘a’ Gini Index is a ratio from the absolute equality line and the Lorenz Curve 100 90 80 70 60 50 40 30 20 10 Cumulative percentage of total income Line of absolute Equality 10 20 30 40 50 60 70 80 90 100 Cumulative percentage of total population

Consumer Price Index These are the reports on price changes for about 80,000 items in 364 categories. Example on pg.352 - All of this information is collected by the bureau of labor statistics.

Inflation This is the general rise in prices. Its important to track of because it distorts the economic statistics that we keep The real problem is that the dollar value of the final output appears to go up without any change in the quantity of goods and services

Stagflation A period of Stagnant growth in the economy combined with inflation. A measure of the cost of stagnation is the GDP Gap- which is the difference between the real GDP and the potential GDP. (potential GDP would be that if all resources were fully employed)

Inflation along with unemployment represent an enormous economic failure and waste of resources of the nation and its people.

How Inflation is measured Economist construct a Consumer price index, or producer price index or a GDP price deflator Inflation is reported in annual rates if change in price level. Change in Price level Inflation Rate= X 100 Beginning price level

Causes of Inflation Demand pull theory- we try to buy more goods and services that the economy can produce. The federal governments deficit- Governments government spending Rising input cost- rising cost of labor drives up the cost of products for manufacturers

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