A Lesson in Macroeconomics GDP & You & Me A Lesson in Macroeconomics

A Video

Macroeconomics Macroeconomics, or “macro” like the cool kids say, is the study of economics across an entire nation’s economy We’re still going to use the economy principles we’ve learned, just on a larger scale

GDP GDP is a measure of national output Formula: GDP = C + I + G + NX C = Consumption I = Investment G = Government Spending NX = Net Exports

Consumption Consumption represents the consumer sector Put simply, it’s people buying stuff Everything from groceries to new cars to crappy toys for ne’er-do-well children

Investment NOT people buying stocks or saving for retirement Total value of capital goods created in the economy during the year Think of factories, factory equipment, office buildings, etc.

Government Spending This is a giant pot of money. Includes government expenditures on national defense, income security, interest on the national debt, healthcare, roads, and education. Does NOT include transfer payments (Welfare, Social Security, etc).

Net Exports Easy to calculate: NX = Total Exports – Total Imports In the US, this number is negative Thanks, foreign oil dependency

Uses of GDP GDP is used to calculate the size of a nation’s economy Economists always want a nation’s GDP to increase every year If GDP decreases, the nation could be in a recession But, inflation factors into this

Real GDP vs. Nominal GDP Nominal GDP in the United States is something like $17 trillion dollars (just a little less than our national debt) This is more than our GDP in, say, 1930. But, also, prices have increased, too. You can’t buy a brand new car for $400 anymore, which is probably a good thing. Real GDP is a measure of GDP that accounts for inflation.

Calculating Inflation To calculate inflation, we use something called the CPI, or Consumer Price Index Basket of Goods CPI measures the percent change in price of the basket from year-to-year

GDP’s Practical Uses Politicians, economists, and bankers all care about GDP rising Why do you care about GDP? We aren’t the richest country, per person, in the world Funny, that

Disparity GDP per capita can also be used to track racial disparities

Standard of Living The Standard of Living is the quality of life based on the possession of necessities and luxuries that make people’s lives easier. Does the United States have a high standard of living?

Global Standards of Living

Economic Growth The goal is to have increased GDP without having too much inflation Sometimes, governments succeed in this task Sometimes, they don’t. Stagflation = period of increased inflation with little or no economic growth