CIA4U0 Analyzing Current Economic Issues Chapter 9: An Introduction to Macroeconomics Topic 1: Defining Macroeconomics Topic 2: Gross Domestic Product: A Way To Measure Output P

Defining Macroeconomics Introduction To-date we have been studying microeconomics Specific/individual markets Demand and supply for a single good/company Individual market structures Simple economies with few products

Defining Macroeconomics Introduction Turning now to Macroeconomics The study of an economy as a whole All consumers, workers and firms working interchangeably produce a certain picture Like computer pixels vs. a computer image Uses high-level or composite indictors to measure the health or progress of an economy

Defining Macroeconomics Why Measure Performance? We need to measure economic performance to: Set tax policy Measure success of economic policies Compare Canadas performance to other countries Assess how individual markets affect the whole Guide contract negotiations Make investment decisions We will be looking at: output, employment and price stability

Gross Domestic Product Topic Overview Introduction Expenditure Approach Drawbacks

Gross Domestic Product Introduction aka GDP Most commonly used measure of a countrys output The total market value of all final goods and services produced within a country in one year

Gross Domestic Product Introduction Can be calculated in two ways: Expenditure approachadd up the total that is spent on all final goods and services in one year Income approachadd up all the income that is earned by the different factors of production (wages, rent, interest, profit) in producing the final goods and services

Gross Domestic Product Introduction Measures only: The final value of goods and services produced (avoids double-counting semi- finished goods) What is actually consumed (including exported)

Gross Domestic Product Expenditure Approach Foundation for fiscal and monetary policy (topics to come) Formula: GDP = C + G + I +(X – M) C = Consumption (consumer purchases) G = Government purchases/spending I = Investment (in new equipment buildings) X = Exports M = Imports = Net Exports

Gross Domestic Product Expenditure Approach We used to use Gross National Product Measures what is actually produced, not consumed Includes what Canadian subsidiaries make elsewhere Excludes what foreign companies produce in Canada

Gross Domestic Product Expenditure Approach GDP is most commonly used tool for measuring and comparing economic growth Country to country Year to year Used to define recession Determines the standard of living –the ability of a country to meet the needs and wants of its population

Gross Domestic Product Expenditure Approach GDP Growth = (GDP 2 –GDP 1 )/GDP 1 E.g.:=(10,000-9,500)/9,500 =500/9,500 =5.3%

Gross Domestic Product Drawbacks to GDP Population size GDP relative to population-comparisons may not be accurate Non-market production is not measured DIY work, homemaking, volunteer work Underground economy Illegal sales, under-the-table work, black market Types of goods produced Weapons production or cost of political strife dont add to an economy

Gross Domestic Product Drawbacks to GDP Leisure Could produce a lot more if we worked 24/7 Obviously leisure time has a value to what is produced Environmental degradation We dont take into account environmental impact Distribution of income Do all people benefit from profits or are there rich and poor groups?