Macroeconomics The study of the entire economy. Used to predict economic performance by looking at the past and current performance of the economy.
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Presentation on theme: "Macroeconomics The study of the entire economy. Used to predict economic performance by looking at the past and current performance of the economy."— Presentation transcript:
1 MacroeconomicsThe study of the entire economy. Used to predict economic performance by looking at the past and current performance of the economy.
2 In order to do this: Measurements called NIPAs are used National Income and Product Accounts track the following items in the nations economyProductionIncomeConsumptionThe tracking process is called National Income Accounting is measured in dollarsProvides information about the nations economic activities
3 The amount of money in the economy is controlled by the Federal Reserve. When deciding how much money to allow into the economy, the FED looks at economic indicators.
4 What are some of these economic indicators? GDP= Gross Domestic Product (GNP)NNP= Net National ProductNI = National IncomePI = Personal IncomeDI = Disposable IncomeCPI = Consumer Price IndexPPI = Producer Price IndexInflationBusinesses Cycle
5 GDP = Gross Domestic Product Is the total dollar value of all final goods and services produced within a country during 1 calendar yearMeasures total production (output)Does not include used cars or second-hand clothing
6 Real GDP v. Nominal GDPNominal GDP: current GDP, expressed in current prices of the period being measuredReal GDP: adjusted for the price changes, allows economists to determine if production increased or decreased, regardless of the changes in the purchasing power of the U.S. dollar
7 Limitations of the GDPIt is not an entirely accurate measure of output and economic growth for the following reasons:1. Gathering necessary data to calculate GDP is slow and time-consuming. Initial GDP figures are often inaccurate, and the Commerce Department often has to issue revised figures.2. GDP only measures market transactions – exchanges of goods and services for money that are recorded in the marketplace. This does not include nonmarket activities- transactions that do not involve money and are not recorded
8 Limitations of the GDP3. Underground economic activity not included in GDP: illegal and unreported legal activities 4. Imperfect indicator of economic growth in a nation and overall wellbeing. The value of many “goods” (things that make the society better) and the detriment of many “bads” (things that make society worse) are not recorded.
9 GNP = Gross National Product Was used until 1991 by the Commerce Department to measure economic growthMeasures the total dollar value of all final output produced with factors of production owned by residents of a country.UN and most countries used GDP, so U.S. switched, making international economic comparisons easier
10 NNP= Net National Product GDP includes money invested in capital goodsInvestment includes money spent on replacing defective or outdated equipment and machineryWhen this is subtracted from the GNP = NNPDoes not include investment spent to maintain current equipment: more representative of nation’s actual output of new goods and services in a year
11 NI = National IncomeDetermines total income paid to the owners of a nation’s factors of productionSum of employees’ and proprietors’ income, real and estimated rental income, corporate profits, and net interestCalculated by subtracting subsides and indirect taxes ( taxes included in final price of goods and services) from net national product.
12 PI= Personal IncomeTotal amount of income earned by people in a given nationSubtract from national income all income that does not go to people (taxes, money reinvested)Add money individuals receive from government transfer payments
13 DPI= Disposable Personal Income The total amount of income available to a nation’s people to spend or saveSubtract personal taxes (income, estate, gift, property, motor vehicle) and nontax payments (fines/passports) from personal income.
14 GDP Activity Final Goods and Services Manicures Bread Cruise missiles Who would purchase these things?ManicuresBreadCruise missilesNew FactoryDressesIncrease in automobile inventoryC Consumers – household purchases of consumer goods and servicesI Investments – purchases of businesses of capital goods, such as factories, tools etc.G Governments – government purchases of goods and services
15 Pepperonia v. Anchovia Each student will get a Final Good or Service First determine which category you fall underC, G or ISecond add how many “parms” (dollars) are made under each categoryThird calculate your countries GDPC+G+I=GDPForth calculate each component’s percentage share of total GDPFifth as a group create a pie chart using the percentages gathered from step 4. Each category should be represented by a different color.