1. MACRO ECONOMICS
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2. M A – C R O Sing Along! The study of the… whole economy…
Is...called..MA-CRO
M A – C R O
MACRO is the name-o!
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3. What is Macroeconomics? Why study the whole economy?
Macroeconomics is the study of the large economy as a whole. It is the study of the big picture.
Instead of analyzing one consumer, we analyze everyone.
Instead of one business we study all businesses.
Why study the whole economy?
The field of macroeconomics was born during the Great Depression.
Government didn’t understand how to fix a depressed economy with 25% unemployment.
Macro was created to:
Measure the health of the whole economy.
Guide government policies to fix problems.
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4. Unit 2:
Macro Measures 4
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5. For all countries there are three major economic goals:
Promote Economic Growth
Limit Unemployment
Keep Prices Stable (Limit Inflation)
In this unit we will analyze how each of these are measured.
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6. Promote Economic Growth How does a country measure
Goal #1
Promote Economic Growth
How does a country measure
economic growth?
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7. How do we know how well the economy is doing?
Economists collect statistics on production, income, investment, and savings.
This is called national income accounting.
The most important measure of growth is GDP.
Gross Domestic Product (GDP) is the dollar value of all final goods and services produced within a country’s borders in one year.
Dollar value- GDP is measured in dollars.
Final Goods-GDP does not include the value of intermediate goods.
One Year-GDP measures annual economic performance.

8. Which 15 countries have the highest GDP?
What does GDP tell us?
Just like calculating your own income, GDP measures how well the U.S. is doing financially.
How do you use GDP?
Compare to previous years (Is there growth?)
Compare policy changes (Did a new policy work?)
Compare to other countries (Are we better off?)
Which 15 countries have the highest GDP?
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9. GDP by Country *CIA Factbook 2013 Estimate Copyright
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*CIA Factbook 2013 Estimate

10. GDP by Country *CIA Factbook 2013 Estimate Copyright
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*CIA Factbook 2013 Estimate

11. World GDP Distribution
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12. 12
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13. How can you measure growth from year to year?
% Change
in GDP =
Year 2 - Year 1
Year 1
X 100
Mordor’s GDP in 2014 was $4000
Mordor’s GDP in 2015 was $5000
What is the % Change in GDP?
Transylvania’s GDP in 2014 was $2,000
Transylvania’s GDP in 2015 was $2,100 13
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14. GDP Growth by Country *CIA Factbook 2013 Estimate Copyright
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*CIA Factbook 2013 Estimate

15. Does GDP accurately measure standard of living?
Standard of living can be measured, in part, by how well the economy is doing…
But it needs to be adjusted to reflect the size of the nation’s population.
GDP Per Capita (per person)
GDP divided by the population. It identifies on average how many products each person makes.
GDP per capita is the best measure of a nation’s standard of living.
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16. What are the top 10 most populated countries?
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17. GDP Per Capita
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18. Why do some countries have higher GDPs than others?
Productivity
1. Economic System
Example#1: Capitalist countries have historically had more economic growth.
Capital (like robots) can produce more than people
Countries with more capital, can produce more products than countries without a lot of capital.
2. Property Rights
3. Capital
Ex: Capital stock is machinery, tools, and man-made resources.
Example#1: India has over a billion people (human resources) but relatively few capital resources and therefore a lower GDP than the U.S.
Example#2: Japan has few natural resources but a high GDP
4. Human Capital (Knowledge)
5. Natural Resources
Ex: Syria has a lower GDP because it is mostly desert.
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19. What is NOT included in GDP?
Intermediate Goods
Goods inside the final goods don’t count.
EX: Price of finished car, not the stock radio or tires.
2. Nonproduction Transactions
Financial Transactions (nothing produced)
Ex: Stocks, bonds, Real estate
Used Goods
Ex: Old cars, used clothes
3. Non-Market and Illegal Activities
Things made at home- household production
Ex: Unpaid work, black markets, drugs
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20. Calculating GDP Two Ways of calculating GDP:
1. Expenditures Approach -Add up all the spending on final goods and services produced in a given year.
2. Income Approach -Add up all the income that resulted from selling all final goods and services produced in a given year.
Adding up how much was spent on goods and services and how much income was earned should generate the same number
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21. Expenditures Approach
Four components of GDP:
Consumer Spending- 70% of U.S. GDP Purchases of final goods by private individuals. Ex: $5 Sandwich at Subway
Investment- 15% of U.S. GDP
Businesses spending tools and equipment.
Ex: Walmart buys self checkout machines
3. Government Spending- 20% of U.S. GDP
Ex: School, tanks, but NOT transfer payments
4. Net Exports- Exports (X) – Imports (M)
Ex: Value of 3 Ford Focuses minus 2 Hondas
GDP = C + I + G + Xn
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22. Calculating GDP
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23. Included or not Included in GDP?
For each situation, identify if it is included in GDP the identify the category C, I, G, or Xn
$10.00 for movie tickets
$5M Increase in defense expenditures
$45 for used economics textbook
Ford makes new $2M factory
$20K Toyota made and sold in Mexico
$10K Profit from selling stocks
$15K car made in US, sold in Canada
$10K Tuition to attend college
$120 Social Security payment to Bob
Farmer purchases new $100K tractor
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24. Included or not Included in GDP?
$10.00 for movie tickets
$5M Increase in defense expenditures
X $45 for used economics textbook
Ford makes new $2M factory
X $20K Toyota made and sold in Mexico
X $10K Profit from selling stocks
$15K car made in US, sold in Canada
$10K Tuition to attend college
X $120 Social Security payment to Bob
Farmer purchases new $100K tractor
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25. 2008 Audit Exam D

26. 2008 Audit Exam
E. New residential homes are counted as I, not C

27. 2007 FRQ
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28. 2007 FRQ
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29. Income Approach
The income approach adds up all the income earned from producing goods and services
Labor Income - Purchases of final goods by private individuals. Ex: $5 Sandwich at Subway
Rental Income - Income earned from property owned by individuals
3. Interest Income- Interest earned from
loaning money to businesses
4. Profit - Money businesses have after paying all
their costs
These are called FACTOR PAYMENTS. Labor earns wages, land earns rent, capital earns interest, and entrepreneurship earns profit.
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30. What are some problems with using GDP to measure the nation’s standard of living?30
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31. Robert Kennedy GDP Speech
Video:
Robert Kennedy GDP Speech 31

32. Nominal GDP vs. Real GDP

33. What is the problem with this method?
How can you figure out which is the most popular movie of all time?
What is the problem with this method?
Nominal Box Office Receipts
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34. How can you figure out which is the most popular movie of all time?
REAL Box Office Receipts (adjusted for inflation)
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35. GDP is rising, but country is worse off!
The Problem with GDP
If a country’s GDP increased from $4 Billion to $5 Billion in one year, is the country experiencing economic growth?
Did the country definitely produce 25% more products?
What is Inflation?
A rising general level of prices
EX: If apples are the only thing being produced
Year 1: 10 apples at $1 each; GDP = $10
Year 2: 10 apples x $1.25; GDP = $12.50
GDP is rising, but country is worse off!
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36. REAL GDP IS THE BEST MEASURE OF ECONOMIC GROWTH!
Real vs. Nominal GDP
Nominal GDP is GDP measured in current prices. It does not account for inflation from year to year.
Real GDP is GDP expressed in constant, or unchanging, dollars. Real GDP adjusts for inflation.
REAL GDP IS THE BEST MEASURE OF ECONOMIC GROWTH!
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37. Real vs. Nominal GDP Example
2008
10 cars at $15,000 each = $150,000
10 trucks at $20,000 each = $200,000
Nominal GDP = $350,000
The GDP in year 2008 shows the dollar value of all final goods produced.
The nominal GDP in year 2009 is higher which suggests that the economy is improving.
But how much is the REAL GDP? How do you get it?
2009
10 cars at $16,000 each = $160,000
10 trucks at $21,000 each= $210,000
Nominal GDP = $370,000
Use 2008 Prices.
The Real GDP for 2009 is the same as 2008 after we adjust for inflation.
2009
10 cars at $15,000 each = $150,000
10 trucks at $20,000 each= $200,000
REAL GDP = $350,000
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38. Real GDP “deflates” nominal GDP by adjusting for inflation in terms of a base year prices.
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39. 20012 Exam A

40. Econmovies
Episode 5: Cars

41. The Business
Cycle

42. The national economy goes up and down like a roller coaster over time
The Business Cycle
The national economy goes up and down like a roller coaster over time
Real GDP
Inflation
Unemployment
Peak
Real GDP
Trough
Full Employment
Recession
(Contraction)
Recovery
(Expansion)
Time
A recession is 6 month period of decline in Real GDP. (If really bad…then depression)
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43. THE BUSINESS CYCLE Why does the economy fluctuate?
Retailer and Producers send misleading information about consumer demand
Advances in tech, productivity, or resources
Outside influences (wars, supply shocks, panic)
Who cares?
Macroeconomics measures these fluctuations and guides policies to keep the economy stable.
The government has the responsibility to:
Promote long-term growth
Prevent unemployment (Resulting from a Bust)
Prevent inflation (Resulting form a Boom)

45. Connection to PPC The shifters of the PPC affect GDP
The same information shown on the business cycle can be shown on a production possibilities curve.
Full employment
Unemployment
Inflation
The shifters of the PPC affect GDP
Change in quantity/quality of resources
Changes in technology
Changes in trade

46. What is Economic Growth?
An increase in real GDP over time
An increase in real GDP per capita over time (usually used to determine standard of living)
Why is economic growth the goal of every society?
Provides better goods and services
Increases wages and standard of living
Allows more leisure time
Economy can better meet wants

47. Define Macroeconomics
What are the 3 economic goals that all countries have
Identify the 3 key parts of the definition of GDP
How do we use GDP
Identify w hat is NOT included in GDP
List the 4 components of GDP
Define Inflation
Explain the difference between Nominal and Real GDP
Explain Real GDP per Capita
Name 10 Disney Movies
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