MacroEconomics Study of choices made by entire economies (Nations) or groups of Nations (i.e. EU) to satisfy unlimited wants and needs with limited resources Big Ideas in Macro Unemployment Inflation Recessions/depressions Economic growth
What is GDP (Gross Domestic Product) Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. Gross domestic product is the best way to measure a country's economy.
GDP is the total value of everything produced by all the people and companies in the country. It doesn't matter if they are citizens or foreign-owned companies. If they are located within the country's boundaries, the government counts their production as GDP.
Consumption Spending by households on good and services. Includes spending on things such as cars, food, and visits to the dentist. Makes up 72% of US GDP.
I = Business Investment All business purchases of new capital (physical and human) Business inventories Only consumer/H.H. Investment: New Home Purchases
Investment in Human Capital
G = Government Spending Includes all Federal, State, and Local Spending
(X-M) = (Exports minus Imports) Also expressed as NX (Net Exports) Exports: We benefit (positive) Imports: Other Countries benefit (negative) (x-m) refers to the Balance of Trade What type of trade balance does the US have?
Whole Group Activity Get out whiteboard and dry erase marker
Tell which component of GDP is effected by the following newspaper headline and whether GDP will increase or decrease. Headline 1: Due to a tax cut, consumers decide to buy more cars. Headline 2: Worried about an increasing budget deficit, the government decides to buy fewer military planes. Headline 3: Increasing prices in the U.S. encourage Americans to by more foreign goods.
Headline 4: Due to a tax increase, consumers decrease purchases on vacation travel. Headline 5: Due to increased incomes, Europeans buy more U.S. goods and services. Headline 6: A foreign government imposes a tariff that discourages its citizens from buying goods from the U.S. Headline 7: Businesses are optimistic about the future and increase construction of new factories.
Headline 8: Many more Americans decide to buy Japanese cars rather than American cars. Headline 9: Households worry about future unemployment and decide to spend less income. Headline 10: Because interest rates increased, business cut back on spending for new machinery. Headline 11: Consumers feel good about the future and take out loans to buy more durable goods such as washing machines.
Headline 12: Decreases in interest rates encourage businesses to take out loans to construct more buildings. Headline 13: To fight unemployment, the government decides to hire more people to work in national parks. Headline 14: Tax cuts to businesses give businesses incentives to buy more computers. Headline 15: To stimulate the economy and provide jobs, the government builds more bridges in California.
Not included in calculation of GDP Things produced outside the country 2. Non- Market activities: No Money exchanged Tasks you do for yourself Examples 3. Transfer Payments: Money transferred from the Government to Citizens Examples: NO new products
Second Hand Sales “Used Goods” 4. Security Payments Income from sale of stocks and bonds NO new Products 5. Underground Activity Illegal transactions Black and Gray Markets Sales not reported/taxes not paid Second Hand Sales “Used Goods” Only count in GDP 1x first time sold
8. Intermediate Goods: Products used to make final g/s Not sold this year Only counted the year sold 8. Intermediate Goods: Products used to make final g/s Only finished g/s are counted
Examples manicures bread cruise missile new factory dresses Final Goods and Services manicures bread cruise missile new factory dresses increase in automobile inventory Intermediate Goods window glass in new automobiles lumber in a new house screws used in a cruise missile flour for making bread cloth for making dresses
INTERMEDIATE OR FINISHED GOOD?