Macroeconomics Economic Indicators.

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Presentation transcript:

Macroeconomics Economic Indicators

Gross Domestic Product Gross Domestic Product (GDP) is the sum of consumer spending, investment spending, government spending, and net exports. How do we calculate GDP? GDP = C + I + G + (X-M)

What goes into GDP? Consumer Spending refers to the monetary value of what households spend on final goods and services in the product market in a given time period. Investment includes the monetary value of final capital goods businesses purchased in a given time period, the value of inventories produced by businesses, but not yet sold, by the end of the measurement time period, and the value of new home construction produced in the given time period.

What goes into GDP? Government spending is the monetary value of any spending on final goods and services by a local, state, or national government in a given time period. Net exports refers to the monetary value of all final goods and services exported by one country minus the monetary value of all final goods and services imported by one country in a given time period. This method of calculating a country’s GDP is the Output Expenditure Model.

How do we calculate the unemployment rate? The unemployment rate is a percentage of people in the labor force who are unemployed. How do we calculate the unemployment rate? Unemployment Rate = # of unemployed people x 100 Total labor force

Unemployment The unemployment rate data comes from 60,000 households and is calculated every month. Since some types of unemployment always exist, economist consider full employment with an unemployment rate of 4% to 6%. Who is not included in unemployment? Anyone under 16, in prison or mental institutions, and must be actively seeking a job

Consumer Price Index = current value of market basket x 100 The consumer price index (CPI) measures the change in value of a basket of goods and services purchased by the average urban consumer. How do we calculate CPI? Consumer Price Index = current value of market basket x 100 value of base year market basket

Consumer Price Index The base year is chosen by the BLS to be the year of comparison. Currently, the BLS uses the value of the market basket from 1982-1984. Statisticians use the resulting CPI number to calculate the inflation rate in the country.

Inflation rate Inflation is a sustained increase in the price level in an economy over time. How do we calculate inflation rate? Inflation rate = new CPI - old CPI x 100 old CPI If the result of this calculation is positive then the price level is rising.

Inflation rate Most economists do not want the inflation rate to be zero percent and agree that some inflation will occur when an economy is growing. Increases in the price level become a concern when: They happen too quickly They make it difficult for households and firms to plan for the future They occur because of shocks in markets for productive resources They are a result of inappropriate public policy decisions

How do we calculate real GDP? Real GDP is the value of current gross domestic product adjusted for inflation. How do we calculate real GDP? Real GDP = GDP x 100 CPI Most countries calculate economic growth using the percent change in real GDP

Real GDP Before adjusting for inflation, an increase in GDP could be due to an increase in the prices of the final goods and service produced rather than an increase in the quantity of goods and services produced. This is a more accurate view of a country's productivity.