MICROECONOMICS The part of economics concerned with individual decisions made by households and businesses, as well as individual markets

MACROECONOMICS The part of economics that is concerned with the economy as a whole National Economic measurements Gross Domestic Product (GDP) Inflation Unemployment Business Cycle

GROSS DOMESTIC PRODUCT The primary measure of the overall output of the U.S. economy The total market value of all final goods and services produced in a given year within the United States Includes U.S. and foreign owned firms

GROSS DOMESTIC PRODUCT GDP is a monetary measure U.S. Department of Commerce Bureau of Economic Analysis 1929 – $103.6 Billion 1930 - $91.2 Billion 1931 - $76.5 Billion 1932 - $58.7 Billion 1945 - $223.1 Billion

GROSS DOMESTIC PRODUCT 1955 - $414.8 Billion 1965 - $719.1 Billion 1975 - $1.64 Trillion 1985 - $4.22 Trillion 1995 - $7.40 Trillion 2000 - $9.82 Trillion

GROSS DOMESTIC PRODUCT 2001 - $10.13 Trillion 2002 - $10.47 Trillion 2003 - $10.96 Trillion 2004 - $11.69 Trillion 2005 - $12.42 Trillion 2006 - $13.18 Trillion 2007 - $13.81 Trillion 2008 - $14.26 Trillion

GROSS DOMESTIC PRODUCT GDP only measures final goods and services in order to avoid multiple counting In other words, we only count the final value of the Ford automobile, not the tires, brakes, stereo equipment, etc…

GROSS DOMESTIC PRODUCT Once again, GDP is a measure of productive output The following do NOT count toward GDP because they do not involve the output of final goods and services

GROSS DOMESTIC PRODUCT Purely Financial Transactions Social Security payments Welfare payments Veterans payments

GROSS DOMESTIC PRODUCT Private Transfer Payments Cash gifts from your parents/relatives Stock Market Transactions Buying and selling of securities ***Paying for the service of a stock broker IS counted

GROSS DOMESTIC PRODUCT Secondhand Sales Used car sales Garage sales

GROSS DOMESTIC PRODUCT There are two different ways to calculate GDP We can look at the sum of all money spent in buying the output – Expenditures Approach Or, we can look at the income derived from producing the output – Income Approach

EXPENDITURES APPROACH C + I + G + Xn Consumer spending Business Investment Government purchases Exports (Net)

+ + + + + + Two Approaches to GDP G D P = = Expenditure Approach Income Approach Consumption by Households Wages + + Rents Investment by Businesses + G D P + = = Interest + Government Purchases + Profits Net Exports (Exports Minus Imports)

C - Consumption Consumer purchases of goods and services Aka – Personal Consumption Expenditures

Ig – Gross Private Domestic Investment All final purchases of machinery, equipment, and tools by businesses All construction, including household construction Why? It could be used to provide goods or services Changes in business inventories Increases are unused output

G – Government Purchases Government purchases of goods and services Government spending on infrastructure (roads, schools, etc…) Does NOT include transfer payments like social security payments or unemployment insurance payments

Xn – Net Exports C + Ig + G + Xn Exports – Imports This tends to be a negative number. C + Ig + G + Xn What is the largest component, by far?