1. Economic growth Macroeconomics 1

2. Fundamental macroeconomic indicators Economic growth Unemployment Inflation 2

3. Gross Domestic Product (GDP) GDP is the market value of the final goods and services produced within a country in a given time period (typically one year). 3

4. Gross National Product (GNP) GDP plus net income earned abroad. GNP = GDP + net income earned abroad

5. Net National Product (NNP) NNP = GNP – depreciation Depreciation is the estimate of the amount of capital (invested in assets of the economy) that will wear out or will be used up in producing GNP.

6. National income (NI) NI = NNP – indirect taxes

7. Economic growth GDP is also the most common measure of an economy’s total output. Economic growth is sustained increases in the real GDP of an economy over a long period of time. Economic growth rate is the annual percentage change of real GDP. 7

8. Expanssion and recession Periods of positive real GDP growth are called expansions. Periods of negative real GDP growth are called recessions (more precisely – recession means that real GDP falls within at least two succesive quarters). 8

9. The Components of GDP GDP = C + I + G +X – Z = C + I + G + NX GDP = C + I + G +X - Z C - Consumption expenditures: purchases by consumers I - Private investment expenditures: purchases by firms G - Government purchases: purchases by federal, state, and local governments NX - Net exports: net purchases by the foreign sector (domestic exports minus domestic imports) X – Export Z - Import

10. Real GDP vs. nominal GDP Real GDP is the value of final goods and services produced in a given year when valued at the prices of a reference base year (GDP in fixed prices). Nominal GDP is the value of final goods and services produced in a given year when valued at the prices of that year (GDP in current prices). 10

11. The virtue of real GDP By comparing the value of production in the two years at the same prices, we reveal the change in production. Changes in nominal GDP are driven not only by changes in physical production but also by changes in prices. Changes in real GDP are driven solely by changes in physical production. 11

12. GDP per capita GDP per capita = the gross income received by the average resident of a country GDP per capita = GDP / number of residents

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