Macroeconomics

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Oct 28, 2013 (3 years and 7 months ago)

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Macroeconomics


Ch. 13 Economic Performance

Section 1

National Output

National Output


The national government keeps statistics on
the economic health and status of the country.


This is important to show how the people in the
nation are living and if the country is prospering.


Slowing or negative growth will alert politicians
and economists to revise policy to retain the
economic strength of the country.

GDP


GDP


Gross Domestic Product



Multiply all of the final goods and services
produced by a country in a 12 month period
by their prices and add them all up to get the
total amount of production


GDP Per Capita


Per Capita


Per Person


Divide GDP by the number of people in a
country.


Often a signal or indicator of a countries
wealth


GDP Excludes…


Not all items of production are included. The
following are excluded:


Intermediate products


products used to make other
products (counted 2x). If you buy flour it is counted.
If a baker buys flour and makes pies it is counted in
the sale of the pie



Second hand sales


already counted



Non
-
value (non
-
market) transactions


cutting your
grass, homemaking



Underground economy


illegal and non reported
materials

GDP is ideally…



A measure of voluntary economic
activities.

GNP


Gross National Product


the $ value of all final
goods, services, and structures produced in one
year with labor and property supplied by a
countries residents


GNP = GDP





+ all foreign funds to America






-

all funds from America paid to



foreign businesses in America.

NNP


NNP (Net national product)




NNP = GNP





-

depreciation of items (obsolete or



worn out materials)

NI


NI (National Income)


income left after all
taxes except the corporate profits tax are
subtracted



NI = NNP



-

indirect taxes, sales tax, excise taxes,




property taxes. No corporate profit taxes

PI


PI (Personal Income) Amount going to
consumers before individual income taxes


PI = NI



-

Corporate profits, corporate income taxes,


SS payments.



+ assistance such as SS, Medicaid,





unemployment insurance

DI


DI (Disposable income)


the income at the
disposal of a countries residents after personal
income taxes.


DI = PI



-

personal income taxes

Inflation


Inflation

is a rise in the general price level


Why do we care about inflation?



If personal income matches inflation, people
are stable. If inflation or other factors are too
high, less stability.


Inflation


$1.00 item + 10% inflation = $1.10



$1.00 item + 10% inflation + 2% factors of
production = $1.12



If our salaries went up 10%, we are covered with
inflation but not special costs. 12% salary increase
means our dollar buys the same.


Price Index


If we remove inflation, we can see actual
change in prices over time.


A
Price Index

is created to examine this


First take one year and examine all prices (The
Base year
)


Next, compare all subsequent years to that first year


The Price Index expresses the price of goods
and services in a given year as a percentage of
those in the base year


Market Basket


How do we gather these prices to compare one
year to another?



The government takes a large amount of items
from various sectors from markets across the
country and compiles prices for the total
“basket”. The “basket” is compared to
“baskets” in other years.

CPI


CPI


Consumer Price Index



This is a government index that looks at
80,000 items in 85 different regions in
America. These items are then averaged to a
base year (1982
-
1984) to see what the price
changes are year over year.