1. Macroeconomic Indicators GDP and what it really means!

2. Consider What does GDP measure? How accurate of a picture does this provide us? What other information would you like to know when considering a countries success?

3. The World Economy Total GDP (2013): $87T Population (2013):7.1B GDP per Capita (2013): $13,100 Population Growth (2013): 1.0% GDP Growth (2013): 2.9% GDP per capita is probably the best measure of a country’s overall well being

5. Figure 39.4: P. 456

6. RegionGDP% of World GDP GDP Per Capita Real GDP Growth United States$17T20%$53,0001.6% European Union$16T18%$35,0000.1% Japan$4.7T5%$36,3002.0% China$13T15%$9,8007.7% Ghana$90B.1%$3,5007.9% Ethiopia$118.2B.13%$1,3007.0% Note. However, that growth rates vary significantly across countries/regions. Do you see a pattern here? Source: CIA World Factbook (2013 Estimates)

7. At the current trends, the standard of living in China will surpass that of the US in 25 years! Or, will they? Per Capita Income That is, can China maintain it’s current growth rate?

8. Generally speaking, productivity growth has been declining since WWII Annual Growth

10. Today’s Agenda Objective: To be able to explain GDP, what it includes, and what it does not include. Essential Skill: To explicitly assess information and draw conclusions.

11. National Income Accounting Measures econ. performance of the entire nation  Brought about by Great Depression Bureau of Economic Analysis Assess three key Macroeconomic Goals: 1. Economic Growth (GDP main factor) 2. Full Employment 3. Price Stability

13. Gross Domestic Product The total market value of all final goods and services produced within a country in a given time period What are the essential parts of this definition? GDP vs. GNP (Gross National Product)

14. Final vs. Intermediate Final good or service A good or service that is produced for its final user and not as a component of another good or service Example: goods bought by households Intermediate good or service A good or service that is produced by one firm, bought by another firm, and used as a component of a final good or service or is used up during the production. Example: lumber or computer chips

15. What’s in GDP? Included  Final goods and services only! Not Included  Private transfer payments Cash gifts from one person to another  Stock Market Transactions  Public transfer payments Ex. Social Security, Welfare, Vet payments  Secondhand sales Ex. Used clothes, used cars

16. Calculating GDP Two Ways: 1) Expenditure Method- adds up all of the spending on goods and services from these four categories -Households- Consumption -Firms- Investment -Government- Government purchases -Rest of the World-Spending on US exports 2) Income method- wages + rent + interest + profit

17. Income Method Wages: money paid to workers who supply their labor Rent: money paid to property owners who supply land, buildings, or equipment Interest: money paid to individuals who supply their personal savings for loans Profit: money earned by business owners who provide entrepreneurship

18. Personal Consumption- “C” Three categories: 1. Durable Goods 2. Nondurable Goods 3. Services THIS IS THE LARGEST CATEGORY- Take a look at our consumption

19. Investment “I” Gross Private Domestic Investment  All final purchases of machinery, tools, and equipment, factories, etc.  Investment=purchasing physical capital goods, NOT financial investment  All construction Including residential  Changes in Inventories We include ALL items produced even if NOT sold The change in inventory is included in GDP.

20. Government Purchases “G” Expenditures for goods and services US Defense Dept buys weapons State Dep’t buys travel services Local gov’t buys cars for police Expenditures for social capital Roads, bridges, etc. Post office

21. Net Exports “Xn” Difference between Exports and Imports included in GDP(Exports minus imports)  Exports (X)- leaving the country  Imports (M)- entering the country Why don’t we include Imports?

22. Practice: For the following slides, decide whether the scenario would be counted in GDP

23. GDP? Shami earns $7.50/hr working a the local grocery store wage

24. GDP? The US armed forces invade a small island and in the process spend $5 billion on machines, arms, and ammunition Gov’t purchases

25. GDP? A rancher receives a monthly check for the oil pumped off of his property rent

26. GDP? Intel spends $300 million building a semiconductor factory in San Jose, Costa Rica Not included

27. GDP? Lindsey buys a new John Deere tractor for her organic farming business in New Hampshire investment

28. GDP? Jim and Frank decide to start a boy band and purchase a used Volkswagon Euro Wan in which to tour Not counted, used van

29. What goes into GDP? Complete the worksheet Identify whether the transaction listed would fall under C, I, G, or Xn Or would it not be considered part of GDP at all?

31. GDP per Capita Means GDP per person Most meaningful measure  Why more meaningful than just using Total GDP? Divide Real GDP by population Compare the Total GDP and the GDP per capita.

32. GDP per Capita 2013 Does NOT mean that income is evenly distributed!

33. How well does GDP measure the welfare of a society? What items are not included?  Non-market transactions Housework, Self-repairs, Bartering  Quality of products  Composition of Products Ex. If country only produces tanks, GDP doesn’t care  Underground economy Informal Economy  Tips, babysitting, golf caddying Black market economy

34. Calculating GDP Nominal v. Real

35. Today’s Agenda Objective: To be able to calculate both real and nominal GDP. Essential Skill: Gather and organize information and data.

36. Calculating GDP Formula = C +I +G +Xn (X-M) Which of these components accounts for the greatest portion of GDP? In 2005 for the US  C=$8,742  +I=$2,057  +G=$2,373  +Xn=-$717  =$12.456 trillion ($12,456,000,000,000)

37. Real v. Nominal GDP http://www.econedlink.org/interactives/inde x.php?iid=207&type=student http://www.econedlink.org/interactives/inde x.php?iid=207&type=student

38. Nominal GDP A gross domestic product (GDP) figure that has not been adjusted for inflation. Also known as "current dollar GDP"

39. Real GDP An inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices. Often referred to as "constant-price," "inflation-corrected" GDP or "constant dollar GDP".

40. GDP Year Production of X Price X 2000 20 $5 2001 20$10 2002 20$20 Nominal GDP (P x Q) Real GDP (current year Q x base yr P) 2000 $1002000 $100 2001 $2002001 $100 2002 $4002002 $100

41. Economic Growth? What does it tell us when NGDP increases? Could be increase in production Could be increase in price Could be combination of production and price What does it tell us when RGDP increases? …b/c P is held constant to base year ….increase is due only to increase in Q ….= ECONOMIC GROWTH

42. Year Production of X Price X 2000 20 $5 2001 20$10 2002 20$20 Nominal GDP (P x Q) Real GDP (current year Q x base yr P) 2000 $1002000 $100 2001 $2002001 $100 2002 $4002002 $100 Conclusions??? Economic growth? Price Levels? There was no economic growth. There was only an increase in price level

43. Matching Vocab With your group match each vocab word with the correct definition

44. Remember this?

45. What else is NOT included? Environmental costs aren’t  BUT the clean-up costs are! Leisure time General well-being Income distribution and equity  90% of output can go to 1% of households