1. Macroeconomics
IB 2.1

3. 2 sector Circular Flow of Income

4. 2 sector Circular Flow of Income

5. 2 sector Circular Flow of Income

6. Factors Provided by Households Provided by firms(business) Capital
Entrepreneurship
Land
Labor
Provided by firms(business)
Interest
Profits
Rent
Wages

7. 2 sector model Too simplistic Injections Leakages Transfer payments
Foreign investment
Return on investment (stocks etc)
Leakages
Imports
Saving
Taxes

8. 3 Sector Circular Flow

9. 3 sector Circular Flow (b)

10. 4 Sector Circular Flow
Transfer
payments
Build model out from 2-5

11. 4 sector, less complicated

12. 4 sectors…
Households
Firms
Government
Financial Markets…
BUT WAIT…

13. 5 sector Circular Flow

14. 6 Sector Circular Flow
JUST KIDDING

15. Moniac Machine

16. 4 Sector Circular Flow Model
ECONOMY SEEKS EQUILIBRIUM

17. Measurement of National Income
Income Method
Output Method
Expenditure Method
PROBLEMS
Year to year informal sector
Flawed data masks health of country

18. Interconnectedness

19. GNI GDP v GNP v GNI Using numbers, “objectively” applied
Most common - Gross Domestic Product or Gross National Product
Difference:
GDP - sum total of everything bought or sold in borders
GNP - sum total of national industries’ products bought or sold wherever in the world…
GNP = GDP + net property income from abroad
NOW we use GNI. (Gross National Income)
(basically GNP with sales tax/VAT taken off the total)
GNI

20. GDP math C + G + I + (X-M) C= Consumption G = Government Spending
I= Business Investment
(X-M) = Exports - Imports

21. Parts to GDP

23. What is counted and not Counted Not Counted New services & goods
Finished products
Real things and real service
Not Counted
Used goods
Primary goods used to manufacture finished goods
Purely Financial Transactions

25. Richest countries

26. US States GDP as compared to nations

27. Net National Product Assets lose value over time
So. NNP = GNP- depreciation

28. Other Measurements NI PI
DPI

29. GDP/GNI can be expressed in different ways
Nominal GDP/GNI
Real GDP/GNI
Per capita GDP/GNI
Purchasing Power Parity (PPP)

30. Nominal v Real Prices go up most years so how to compare year to year?
Real GDP = GDP expressed in “chained” dollars for inflation
GDP Deflator
and the Inflation Calculator

31. China GDP Growth since 1998

32. Growth in real GDP

33. Per Capita GDP GDP divided by population China – 7.3 Trillion (#2)
US -15 Trillion (#1)
China – 8,400 (#94)
US – 48,100 (#8)

34. Per Capita GDP GDP divided by population US 14.2 T Eurozone 12.4 T
Japan 5 T*
China 4.9 T*
France 2.6 T
UK 2.1 T
Canada 1.3 T
India 1.2 T
Phillipines 160 B
Morocco 90 B

36. Original World Mapper

37. Per Capita GDP 2000 years ago

38. Nominal GDP in 2015

39. Countries experiencing GDP decline - %

40. Growth in GDP

41. Growth

42. Stocks and GDP Per cap

43. Purchasing Power Parity (PPP)
Per capita still doesn’t give a clear picture
One US Dollar buys one tomato in US
In Morocco .07 cents buys one tomato
So adjust the per capita (in dollars) to account for how far one dollar goes
Zimbabwe, Morocco, Luxemburg

44. Percent living on $1 a day

45. The Wretched Dollar

46. PPP <$10 a day

47. PPP per capita

48. GDP vs PPP

49. Big Mac Index

51. 2012

52. So…… GDP Per Capita PPP Nationmaster says GDP (per cap) PPP

53. The G’s
G7 (8)
G20
G77

54. G 77 (actually 132 countries)

55. GDP measures what? GDP can grow due to bad events:
Natural disasters
War
Crime
Health epidemics
And misses informal sector
So we have another measurement
GPI (Genuine Progress Indicator)

56. Genuine Progress Indicator

57. IN US

58. The Hidden Economy % of GDP hidden Greece -28.2% Italy - 25.7%
Norway -18.4%
Canada %
USA -8.4%

59. Next slide stolen from AnimationEconomics.com

60. U.S. Underground Economy What doesn’t get reported
Illegal
$300 B
Legal
$600 B
Drugs $120
Bribery $35
Self Employed $255
Gambling and
Loan Sharking $10
Other Legal $25
Rents & Royalties $30
Pornography $20
Fraud $30
Corporate Profits $50
Other Illegal $20
Prostitution $30
Interest $55
Stolen Goods $35
Wages and
Salaries $185
What gets reported is
the “Above Ground”
What doesn’t get reported
is the “Underground”

61. Drawbacks to using GDP Accuracy Informal Sector Hidden Economy
“I’m getting $1,000 to kill
you, Ziggy, but unfortunately it
will not count in GDP.”
Accuracy
Informal Sector
Hidden Economy
Does not count unpaid work
Neglects externalities aka The Green GDP
High GDP does not equal good times

62. Pick an OECD Country

64. Measuring Development
Big Picture:
Ranking of several areas and averaging
Most common
Human Development Index
Education
Health
Income
OLD Adult Literacy rate NEW: School Years
Life expectancy
GDP per capita on PPP basis

65. HDI
Top score = 10
High = over 8.0
Middle =
Low = under 4.99

67. Human Development Index

69. Faults of HDI Accuracy (again) Misses gap between rich and poor
Ignores discrepancy between men and women
Creation of Gender-related Development Index (GDI)
And Human Poverty Index -1 and HPI-2

70. HDI(Bono flv) Country Rank of HDI HDI can differ from GDP stats
Remember high GDP does not always equal “livability” and HDI measures more than just income.

71. HDI

72. Other ways to measure
Bhutan
Happiness Index
Other maps

73. Sidebar: Does HDI=Happiness?

74. Happiness scores

78. Definitions
Downturn
Recession
Depression

84. Unemployment US 9.9% now 7.9 EU now 11.7% Morocco 8.7% Panama 4.00%
Spain 26%
France 10%
Netherlands 7%
Morocco 8.7%
Panama 4.00%