Presentation on theme: "The branch of economic theory dealing with the economy as a whole and decision making by governments."— Presentation transcript:
The branch of economic theory dealing with the economy as a whole and decision making by governments.
Ch 13- Measuring the Economy’s Performance Section 1: National Income Accounting- The measurement of the national economy’s performance, dealing with the overall economy’s output and income
Five Major Stats that Measure the National Economy Gross Domestic Product (GDP) Net Domestic Product (NDP) National Income (NI) Personal Income (PI) Disposable Personal Income (DPI)
GDP Total dollar value of all goods and services produced in a nation in a single year 4 aspects of GDP Measuring Value Measuring Final Goods and Services Computing GDP Weaknesses of GDP
Measuring Value Must measure value of all products and services, not numbers of products and services Ex- one country produced 5 million paperclips; the other produces 3 million computers, which one has a greater GDP?
Measuring Final Goods and Services Must not double count goods; instead measure the final product Ex- are you going to measure the number of bike tires and the number of bikes made if you’re only going to sell the bikes?
Computing GDP Four categories of expenditures are added together to compute GDP Consumer goods and services Investment (Business) goods and services Government goods and services Net Exports
Weaknesses of GDP Does not measure the value of products and services of those who work off the books or buy off the books
NDP Value of a nation’s total output (GDP) minus the total value lost through depreciation on equipment Depreciation- loss of value because of wear and tear to durable and capital goods Ex- cost to replace conveyor belt in factory Cost of recall of automobiles with faulty parts
National Income Total income earned by everyone in the economy
Personal Income Total income that individuals receive before personal taxes are paid Includes transfer payments – welfare, social security, Medicaid, Medicare, disability insurance, etc.
Disposable Personal Income Income remaining for people to spend or save after all taxes have been paid
Ch 13- Section 2- Correcting Statistics for Inflation Inflation- Prolonged rise in the general price level of goods and services
The Purchasing Power of Money The real goods and services that money can buy As inflation increases, the purchasing power of money decreases
Measures of Inflation Consumer Price Index (CPI) Producer Price Index (PPI) GDP Price Deflator
Consumer Price Index Measure of the change in price over time of a specific group of goods and services used by the average household The government tracks inflation on a monthly basis using a market basket ( 80,000 goods and services that the typical household uses)
Consumer Price Index Item AItem BItem C Year 1112.50225.00110.00 Year 2121.50243.00128.00 Change in Index Points 9.0018.00 Percent Change 9.00/112. 50*100=8 18.00/225.00*100= 8 18.00/110.00*100= 16.4
Consumer Price Index 199920002001 Food164.1167.8173.6 Clothing131.3129.6127.3 Housing163.9169.6200.6 Medical250.6260.8272.8
Producer Price Index Measure of the change in price over time that US producers charge for their goods and services
GDP Price Deflator Price index that removes the effect of inflation from GDP so that the overall economy in one year can be compared to another year provides the government with the Real GDP a real measure of the value of goods produced in a single year in comparison with years past.
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Ch 13-Section 5: Causes and Indicators of Business Fluctuations Causes of Business Fluctuations Business Investment Government Activity ( Fiscal and Monetary Policy) External Factors (War; Limited Resources, Natural Disasters) Psychological factors ( Aftermath of September 11 th fear less spending)
http://www.cnn.com/video/?iref=videoglobal http://www.cnn.com/video/?iref=videoglobal AC 360: Economic Woes Is the stimulus working?
Economic Indicators Statistics that measure variables in the economy 3 Types Leading Indicators Coincident Indicators Lagging Indicators
Leading Indicators Statistics that point to what will happen in the economy Exs- changes in the average number of hours for production workers in manufacturing; changes in stock prices, etc.
Coincident Indicators Economic indicators that usually change at the same time as changes in overall business activity Serve as evidence of the stage of the cycle you are in Exs- changes in disposable personal income
Lagging Indicators Indicators that seem to lag behind changes in overall business activity Effects of changes in business cycle Exs- changes in average length of unemployment; change in the average interest rate charged by banks to their best customers
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