Principle of Macroeconomics

sizzledlickforkΔιαχείριση

28 Οκτ 2013 (πριν από 3 χρόνια και 1 μήνα)

86 εμφανίσεις

1

Principle of Macroeconomics

Dr. Ou Hu


Webpage:
www.as.ysu.edu/~ohu


Office Hours
:11:00
-
12:00, Monday through
Friday and by appointment

2

Principles of Macroeconomics


Macroeconomics


study the behaviors of the
overall economy



Macroeconomic Goals


Sustainable economic growth


Full employment


Stable price

3

Gross Domestic Product, GDP: A Definition


A nation’s gross domestic product (GDP)



Total value of all final goods and services produced
for the market during a given period within the
nation’s borders.


4

Gross Domestic Product, GDP: A Definition


…of all final…


When measuring production, we only count goods and
services that are sold to their final users.


Avoids over
-
counting intermediate products when measuring
GDP.


Value of all intermediate products is automatically included in
value of final products they are used to create.


Examples: tires, glass, flour, etc.

5

Gross Domestic Product, GDP: A Definition


…goods and services…


Goods: cars, furniture, computers, beer, etc.


Services: medical, financial, educational, etc.


…produced…


In order to contribute to GDP, something must be
produced.


Q:

should stocks or bonds be included in the calculation


of GDP?

6

Gross Domestic Product, GDP: A Definition


…for the market…


GDP does not include all final goods and services produced in the
economy


Includes only the ones produced for the market

that is, with the
intention of being sold.


Example:
‘Do it yourself’

activities



…during a given period…


GDP measures production during some specific period of time


Only goods produced during that period are counted.


how about old houses? And how about the services provided by the
realtors?


GDP is actually measured for each quarter, and reported as an annual
rate.

7

Gross Domestic Product, GDP: A Definition


…within the nation’s borders


U.S. GDP measures output produced within U.S.
borders.


Regardless of whether it was produced by Americans


Incomes Americans earned abroad are not counted.


However, foreigners producing goods or services within the
country are included:


Chinese Acrobats, Toyota, Andrea Bocelli


GDP vs.GNP


GNP=GDP+net income receipts

8

The Expenditure Approach to GDP


Expenditure approach divides output into four categories
according to which group in the economy purchases it as
final users


Consumption goods and services (C)

purchased by households



Private investment goods and services (I)

purchased by
businesses



Government goods and services (G)

purchased by government
agencies



Net exports (NX)

purchased by foreigners

9

The Expenditure Approach to GDP



When we add up the purchases of all four groups we get
GDP


GDP = C + I + G + NX

10

Consumption Spending


Consumption is the part of GDP purchased by households
as final users


Almost everything households buy during the year is included as
part of consumption spending when we calculate GDP



One exception is construction of new homes


Counted as private investment

11

Private Investment


Private investment has three components


Business Fixed Investment


Factories, office buildings, machinery, and software


Are regarded as final goods, and firms that buy them as final users of
those goods


Residential Investment


Residential housing is an important part of a nation’s capital stock


House will continue to provide services into the future


Changes in Business Inventories


Why do we count the change in firms’ inventories as part of
investment in measuring GDP?


When goods are produced but not sold during the year, they end up in a
firm’s inventory stock


Part of the nation’s capital stock


Will provide services in the future, when they are finally sold and used

12

Government Purchases


Purchases by state, local, and federal government are
included.


Government purchases include



Goods


Fighter jets, police cars, school buildings, spy satellites, etc.


Services


Such as those performed by police, legislators, and military
personnel


Government is considered to be a purchaser even if it
actually produces the goods or services itself

13

Government Purchases


Transfer payments represent money redistributed from
one group of citizens (taxpayers) to another (poor,
unemployed, elderly).



While transfers are included in government budgets as outlays
they are not purchases of currently produced goods and services.


Not result in production of new goods and services


Not included in government purchases or in GDP


14

Net Exports


Not only do we spend on domestic goods and services,
but we also spend on those from the rest of the world. So
does the rest of the world.



Add all the U.S. exports (
sold to foreigners
) in the measure of GDP


Deduct all the U.S. imports (
bought from foreigners
) during the
year, leaving us with just output produced in United States


15

Other Approaches to GDP: The Value
-
Added
Approach


Value added


Firm’s contribution to a product or


Revenue it receives for its output


Minus cost of all the intermediate goods that it buys



GDP is sum of values added by all firms in economy.

16

Other Approaches to GDP: The Factor
Payments Approach


In any year, value added by a firm is equal to total factor
payments made by that firm.


Thus, GDP = total factor payments made by all firms in the
economy


factor payments like wages, salaries, rent, interest and profit


GDP is measured by adding up all of the income



Gives us an important insight into the macroeconomy


Total output of economy (GDP) = total income earned in the
economy


17

Measuring GDP: A Summary


Different ways to calculate GDP


Expenditure Approach


GDP = C + I + G + NX


Value
-
Added Approach


GDP = Sum of value added by all firms


Factor Payments Approach


GDP = Wages and Salaries + interest + rent + profit


Therefore, Total output = Total income

18

Problems With GDP


Changes in Quality


Underground Economy


Non
-
market Production


Not a perfect measure of economic well
-
being

19

Change in Quality



While BEA includes impact of quality changes for many
goods and services (such as automobiles and
computers)


Does not have the resources to estimate quality changes for
millions of different goods and services



By ignoring these quality improvements, GDP probably
understates true growth from year to year.

20

The Underground Economy


Some production is hidden from government
authorities


Either because it is illegal


Drugs, prostitution, most gambling


Or because those engaged in it are avoiding taxes


Production in these hidden markets cannot be measured
accurately

21

Non
-
Market Production


GDP does not include non
-
market production


Goods and services that are produced, but not sold in the market



Whenever a non
-
market transaction becomes a market
transaction GDP will rise even though total production has
remained the same



So, we must we must exercise caution in interpreting
changes in GDP.

22


Not a perfect measure of economic well
-
being



No value measured on leisure



“Bad” things can raise GDP.


Disasters, wars, etc.



Externality


ecological cost