Presentation is loading. Please wait.

Presentation is loading. Please wait.

Economic Well Being Agec 217, Summer 2007. Economic Well Being Macroeconomics The study of the economy as a whole.

Similar presentations


Presentation on theme: "Economic Well Being Agec 217, Summer 2007. Economic Well Being Macroeconomics The study of the economy as a whole."— Presentation transcript:

1 Economic Well Being Agec 217, Summer 2007

2 Economic Well Being Macroeconomics The study of the economy as a whole

3 Circular Flow Diagram (Mankiw) Copyright © 2004 South-Western Spending Goods and services bought Revenue Goods and services sold Labor, land, and capital Income = Flow of inputs and outputs = Flow of dollars Factors of production Wages, rent, and profit FIRMS Produce and sell goods and services Hire and use factors of production Buy and consume goods and services Own and sell factors of production HOUSEHOLDS Households sell Firms buy MARKETS FOR FACTORS OF PRODUCTION Firms sell Households buy MARKETS FOR GOODS AND SERVICES

4 Economic Well Being Macroeconomic Indicators Employment and Unemployment Income Wealth Inflation Stock market indices Interest rates Retirement solvency Output (GDP)

5 Economic Well Being

6 Gross Domestic Product (GDP) – The market value of all final goods and services produced within a country in a given period of time Final goods (intermediate goods not included) Produced within borders, by citizens or foreigners Time period: typically one year

7 GDP Gross Domestic Product = C + I + G + NX C  Consumption I  Investment G  Government Spending NX  Net Exports Net Exports = Exports - Imports

8 GDP Per capita GDP – Gross Domestic Product per person in a country Nominal GDP – Uses prices in the year of the measurement Real GDP – Uses prices for a “base” year to enable year to year comparisons

9 GDP Values (US, 2001) Total in Trillions of Dollars Percent of Total Consumption (C) $7.069% Investment (I) $1.616% Government Purchases (G) $1.918% Net Exports (NX)-$0.3-3% Total$ %

10 Historical GDP

11 GDP Measured Assume a diet of Pizza and Soda – 2005: 500 pizza slices and 300 sodas Prices: pizza = $1.00 and soda = $0.50 – 2006: 550 pizza slices and 330 sodas Prices: pizza = $1.10 and soda = $1.00

12 GDP Measured Nominal GDP’s – * $ * $0.50 = $650 – * $ * $1.00 = $935 – Percent change = 44% growth

13 GDP Measured Real GDP’s (Base year = 2005) – * $ * $0.50 = $650 – * $ * $0.50 = $715 – Percent change = 10% growth

14 GDP Measured GDP Deflator (measure of inflation) for base year (Inflation: the percent increase in price level) – Calculation Nominal GDP / Real GDP * 100 – 2005 (2005 base) GDP Deflator = ($650 / $650) * 100 = 100 – 2006 (2005 base) GDP Deflator = ($935 / $715) * 100 = 131

15 GDP Measured Using the deflator – Calulation Nominal GDP / GDP Deflator * 100 = Real GDP – 2006 ($935 /131) * 100= $715

16 GDP Recession: Two quarters of declining real GDP Depression: A severe or long recession

17

18 GDP Recession: Negative % change in real GDP for two consecutive quarters % Change GDP = (Current Period GDP – Previous Period GDP) * Previous Previous GDP

19 GDP rationale Real GDP per capita is a measure of income and buying power in an economy. It measures our ability to produce the items we need and desire. Recessions as measured by GDP often arrive with stock market drops beforehand and higher unemployment afterwards.

20 Critiques of GDP Household Income and GDP

21 Critiques of GDP Consumer Confidence Index (Conference Board): Is it predictive of actual conditions? – 1. Current business conditions. – 2. Business conditions for the next six months. – 3. Current employment conditions. – 4. Employment conditions for the next six months. – 5. Total family income for the next six months. Frogs in water

22

23 Critiques of GDP Human Development Index – Life Expectancy – Education (literacy and enrollment) – GDP

24 Critiques of GDP Human Development Index

25 Critiques of GDP What we spend money on is not always positive (car accident). GDP does not include how much time we spend on labor Some of production has environmental impacts, for which the costs are not always measured

26 Summary GDP is comparatively easy to measure and consistently used to determine a country’s overall economic health as it has links to many measures of well being. However, GDP may not capture all aspects of well being that are important to a nation’s citizens.


Download ppt "Economic Well Being Agec 217, Summer 2007. Economic Well Being Macroeconomics The study of the economy as a whole."

Similar presentations


Ads by Google