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 Year Change in Index Points Percent Change 9.00/ *100= /225.00*100= /110.00*100= 16.4

Consumer Price Index Food Clothing Housing Medical

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.

Ch 13- Section 3: Aggregate Demand and Supply

Aggregates  The summing up of all the individual parts of the economy  Averages

Aggregate Demand  Total quantity of goods and services in the entire economy that all citizens will demand at any single time

Aggregate Supply  Real domestic output of producers based on the rise and fall of the price level

Demand and Supply Curve  As aggregate demand increases, aggregate supply decreases, and inflation increases

Ch 13- Section 4: Business Fluctuations  Business Fluctuations- Ups and downs in the economy

The Business Cycle  Peak/boom  Contraction  Recession  Trough  Expansion/ Recovery

 NY1 | 24 Hour Local News | Year In Review | 2008 In Review: U.S. Economy Stumbles Through Recession NY1 | 24 Hour Local News | Year In Review | 2008 In Review: U.S. Economy Stumbles Through Recession

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)

  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

  Dec 08 special broadcast  Nov 25 special broadcast 3:00 left