Gross Domestic Product (GDP) Chapter 12 Chapter 12

What is Macroeconomics? Macroeconomics is the study of an entire economy or one of its principle sectors

GNP GNP or the Gross National Product is the total annual income earned by a nation in the world--- no matter if it resizes in the U.S.A. or not.. An American factory in India counts towards GNP. A Japanese company in New York city would NOT count towards GNP –Nike shoe factory in India (yes) –Toyota company in Detroit (no) GNP was replaced by (GDP) Gross Domestic Product in 1991.

GDP Gross Domestic Product, or GDP, is the total dollar value of all final goods and services produced within a country during one calendar year In the United States, its 2011 GDP estimate is $15.1 trillion. Per capita income was $47,400 (8 th in the world)

 Currently………………….  What country do you think is number 1 today?

RankCountry INCOME Per GDP Population of Nation 1 Qatar$91, M people 2 Luxembourg$89,562.5 M people 3 United Arab Emirates $57, M people 4 Norway$56, M people 5 Singapore$56, M people 6 USA$47, M people 7 Switzerland$46, M people 8 Netherlands$42, M people 9 Ireland$39, M people 10 Austria$39, M people

GDP Unemployment 1) United States 13.2 trillion7.9% 2) Japan4.3 trillion4.2% 3) Germany2.9 trillion6.5% 4) France2.2 trillion10.2% 5) United Kingdom2.3 trillion7.8% 6) China2.6 trillion4.1% 7) Italy1.8 trillion 8.7% 8) Canada1.2 trillion7.4% 9) Spain1.2 trillion25.02% 10) Mexico839 billion5.0% *Greece25.4%

Prediction for the USA from 2006 to 2050 with the usage of its energy.

Nominal GDP This is the current GDP which expresses the current price being measured This is the current GDP which expresses the current price being measured It is also a figure that has not been adjusted for inflation It is also a figure that has not been adjusted for inflation Also known as "current dollar GDP" or "chained dollar GDP Also known as "current dollar GDP" or "chained dollar GDP

Real GDP The value of a nation’s GDP after it has been adjusted for inflation The value of a nation’s GDP after it has been adjusted for inflation

Output-Expenditure Model C+I+G + (X-M)=GDP (C) Personal consumption expenditures (I) Gross investment (G) Government purchases of goods & services (X) Exports into a country (M) Imports out of a country

(C) Personal Consumption Expenditures Personal consumption expenditures are the total spending by consumers for durable and non-durable goods and services during a specified period of time

(C) Personal Consumption Expenditures Durable Goods & Services---things that last a long time include: car/truck, home, computer Durable Goods & Services---things that last a long time include: car/truck, home, computer

(C) Personal Consumption Expenditures (C) Personal Consumption Expenditures  Non-Durable Goods & Services---things that DON’T last a long time include: food, cosmetics, medical care, entertainment

(I) Gross Investment Gross Investment is the total value of all capital goods produced in a given nation during one year as well as changes in the dollar value of business inventories. Economists break gross investment into two subcategories: Fixed Investment Inventory Investment

(I) Gross Investment---Fixed Investment  Fixed investment includes spending money on residential structures (homes), non residential structures (buildings), or new machinery

(I)Gross Investment  Inventory investment refers to the increase or decrease in the total dollar amount of the stock or raw materials during a given period of time

(G) Government Purchases (G) Government Purchases The third component of GDP consists of the total dollar value that federal, state, and local governments spend on goods and services such as highways, public education, and national defense. The third component of GDP consists of the total dollar value that federal, state, and local governments spend on goods and services such as highways, public education, and national defense.

Government Purchases

Exports and Imports Exports brings in the products and services into a nation Imports are the products and services which leaves a nation to sell

How to Increase GDP? Two philosophies Demand Side –Gov spending (increases) Supply Side –Taxes and the effect of the economy (reduce taxes in an economy) We will get into this in Chapter 15………….

Terms Price level = The average of all prices in the economy. It is used to calculate the average prices of all goods and services in a nation Aggregate Supply = The total amount of goods and services in the economy available at all possible prices

How does this affect GDP? When aggregate supplies are low—more products and services are needed….. This tips off GDP that the economy is heading in either a positive/negative way depending on how much supplies are laying around and how much demand is out there for the consumer

Business Cycle  Business Cycles are fluctuations, or changes, in a market system’s economic activity. They include :  Expansion : growth in an economy  Peak : At the highest point and most prosperous  Contraction : Decrease in an economy  Trough : At the lowest point in an economy

 Recession: A decline in real GDP for TWO or more consecutive quarters (measured every three months)  The U.S.A. is just coming out of a recession in 2009

 Depression: A prolonged and severe recession  The Great Depression in the 1930s was Americas’ worst depression

How do economists advise us in avoiding a recession?  Leading Indicators are a set of economic variables that economists use to predict future trends in the business cycle  This includes examining:  The Stock Market  Interest Rates  Manufactures new orders of capital goods  Unemployment

How can we make sure a recession does not happen? –Make sure people are spending money But, how do you do that???? –Make money available to the consumer What if too much money is available (too low of interest rates)? –Leads to inflation—prices don’t reflect the real value What if there isn’t enough money available to borrow (too high of interest rates)? –Leads to a recession because people are not purchasing goods and services; they are saving their money and not investing in the Stock Market and not spend their $

Which is why……….. Economists love data where….. Economists love data where….. They calculate the spending of Americans with GDP in a given quarter/year They calculate the spending of Americans with GDP in a given quarter/year They look at the Stock Market and trends They look at the Stock Market and trends They examine the unemployment percentage in the country They examine the unemployment percentage in the country They calculate how much is being reinvested by entrepreneurs back into their businesses They calculate how much is being reinvested by entrepreneurs back into their businesses

Being an Economists is not an exact science…. because the consumers dictate everything whether they spend or not. Consumers will tend to spend if they feel the economy is good and save more when the economy is down.

The End