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

2. 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

3. 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

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

5. GROSS DOMESTIC PRODUCT
$414.8 Billion
$719.1 Billion
$1.64 Trillion
$4.22 Trillion
$7.40 Trillion
$9.82 Trillion

6. GROSS DOMESTIC PRODUCT
$10.13 Trillion
$10.47 Trillion
$10.96 Trillion
$11.69 Trillion
$12.42 Trillion
$13.18 Trillion
$13.81 Trillion
$14.26 Trillion

7. 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…

8. 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

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

10. 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

11. GROSS DOMESTIC PRODUCT
Secondhand Sales
Used car sales
Garage sales

12. 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

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

14. + + + + + + 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)

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

16. 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

17. 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

18. 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?