1. Measuring the Economy’s Performance Macro Economics Unit 5
PowerPoint #1
Measuring the Economy’s Performance
Macro Economics
Unit 5

2. Essential Questions: Explain the difference between GDP and GNP
Explain the differenced between inflation and deflation

3. Slideshow video clip questions:
As you watch each video, write all questions (that are on each slide) in the left margin area of your notes. Answer the questions on the right.
Questions
Answers

4. Unit 5: Macro Economics
Answer the following questions while watching the video:
What is Macro Economics and why is it important?
Why did the government start measuring GDP?

5. What the Heck is GDP?
Definition: the total dollar value of all final goods produced in a country during a year.
Answer the following questions while watching the video: (write questions on the left under “video notes”)
What does GDP stand for?
What is the difference between GDP and GNP?
What is per capita GDP?

6. Measuring GDP
GDP only accounts for final products so that parts are not double counted.
Only new products are counted: used products are considered a transfer from one owner to another.

7. How is GDP calculated?
GDP is computed by adding products purchased by consumers (C), businesses (I), government (G), and net exports (X) (the difference between exports and imports).
C + I + G + X = GDP

8. The Four Categories of GDP and how to Calculate them
Things to write down while watching the video:
Write the formula, and what each letter stands for
Write down the three key things are not included in the GDP

9. Four Categories of GDP
To compute GDP, economists add the total amount of expenditures from the consumer sector, the investment sector, the government sector, and net exports.

10. What is GNI? Explain the difference between GDP, GNI, and GNP

11. Analyze the map.
Name four countries that have the highest GNI per capita
Name four countries that have the lowest GNI per capita

12. Measurements of Income
National income (NI) is the total earned by everyone in the economy.
NI is made up of wages and salaries, income of self-employed people, rental income, corporate profits, and interest on savings and other investments.

13. Measurements of Income
Personal income (PI) is income received before paying personal taxes.
What things are considered as part of Personal Income?
Disposable personal income (DI) is income left to purchase goods or put in savings after paying taxes.

14. The Purchasing Power of Money
When inflation occurs, the prices of goods and services rise, and the purchasing power of the dollar goes down.
Purchasing power of a dollar is equal to the real goods and services the dollar can buy.

15. What is Inflation and Bubbles?
Answer these questions while watching…
How do economists measure inflation?
What is the CPI?
What does “real (value)” mean?
What does nominal mean?
What is “demand pull inflation?
What the problem with a bubble is that it depends on __________________________.

16. The Purchasing Power of Money
Inflation can also be defined as the decline in the purchasing power of money.
Helps people with fixed debt
Hurts people with fixed income, and lenders
Inflation must be taken into account when calculating the GDP.

17. Inflation Calculator http://www.usinflationcalculator.com/
Plug in three different time periods including 1920 to 1932.
Write each of them down with the accompanying numbers.
Write down if it is inflation or deflation.

18. The Purchasing Power of Money
Deflation is a prolonged decline in the general price level.
Hurts anyone that owns anything, or produces anything!
Explain why deflation is a curse and ends up being a vicious circle.

19. Measures of Inflation = x 100 CPI
The consumer price index (CPI) is a measure of the change in price of a specific group of products and services (a market basket) used by the average household.
If the CPI > 100 = inflation (CPI=200 means prices have doubled)
If the CPI < 100 = deflation (CPI=50 means prices are half what they used to be)
CPI = x
100
Price of Market Basket
In Current Year
Price of Same Basket
In Base Year

20. Measures of Inflation
The CPI is used to calculate the rate of inflation from one year to another.
If the CPI in 1992 was 140 and the CPI in 2014 is 238, we can calculate the increase in inflation during the time period by the following method
Rate of Inflation = (CPI current year – CPI base year) X 100
CPI base year
70 = (238 – 140) X 100
140
The producer price index (PPI) measures the average change in prices that companies receive for their goods and services.
The PPI usually rises before the CPI (leading indicator).

21. Current and Real GDP
Inflation skews GDP by making it appear that more output was produced, when in reality only the prices of goods and services have increased.
The GDP price deflator is used to remove effects of inflation from GDP so that different years can be compared in terms of spending value = REAL GDP.

22. Essential Questions: Explain the difference between GDP and GNP
Explain the differenced between inflation and deflation