National Income Accounting Because of the Great Depression, economists felt they needed to monitor our economy, so they can predict and prevent trouble. Macroeconomics – The Study of the behavior and decision making of an entire economy.
a)The total value of all goods and services produced within a Countries boarders in 1 year. b)The value of all final Durable goods: those products which have a usefulness of more than 1 year. Ex: Cars, Refrigerators, Ex: Cars, Refrigerators, houses, etc.. houses, etc.. I’m a cutie and durable I sold it, so It’s durable
c) Only the value of all final goods is used. d) Intermediate goods are not counted- those added to another product to create the finish product.
HOWEVER: GDP does not account for “non-market” activities- barteringvolunteer services GDP does not account for “non-market” activities- bartering or volunteer services. e) Non-Durable, e) Non-Durable, Those goods that last for a short period of time. Ex: food, light bulbs, shoes… Ex: food, light bulbs, shoes…
How is GDP Determined? The Income Approach – The Gov’t adds up all the incomes in the economy.
How is GDP Determined? GDP = C + I + G + E *The Expenditure Approach* C= personal consumer spending I= gross investment G = government purchases E = net exports I just bought 20 shares
GDP = C + I + G + E Personal Consumer Spending (C): Personal Consumer Spending (C): Consumer purchases of durable goods. Consumer purchases of durable goods. Gross Investment (I): Business spending on equipment, machinery, & buildings. Gross Investment (I): Business spending on equipment, machinery, & buildings. Government Purchases (G): Government Purchases (G): Total value of purchases by local, state, & Federal governments. Net Exports (E): Net Exports (E): Value of goods sent out of the country minus the value of those brought in.
GNP is the total value of all goods & services produced globally (Running business in other countries) by the citizens of a country in 1 year. - Subtract production of firms. owned by non-citizens. - Subtract production of firms. owned by non-citizens. - Add production of companies. owned & operated by citizens. outside the nation. - Add production of companies. owned & operated by citizens. outside the nation. It is believed 25 million Americans have hidden incomes not reported, about a half a trillion dollars.
G Gross domestic product (GDP) D Durable goods Nondurable goods Nominal GDP Real GDP D Depreciation I Intermediate goods
is the up and down changes of a market system’s economic activity. is the up and down changes of a market system’s economic activity. The activities which indicate changes in the business cycle include: Employment…Income…Production… Employment…Income…Production… Spending/savings…Interest rates… Spending/savings…Interest rates… Stock prices…Investment Stock prices…Investment
Expansion: growth in GDP. Peak: point where the GDP stops rising and the country is at its strongest & most productive. Recession: a business slowdown- a decline in GDP for 2 economic quarters (6 months). Depression: demand, production, and employment are at their lowest levels. Recovery: restoration of economic growth.
“Trough” economy’s lowest point = Depression “Contraction” economy’s period of decline “Recovery” economy’s highest point= Expansion
The Federal Reserve takes actions to regulate the economy. It tries to influence the GDP levels and inflation. Maintains national financial stability: ~ The Fed makes more money available helps the economy grow: (more money = more spending = more jobs) ~ Taking money out of circulation to slow down the economy (less money = less spending = slowing inflation rate)
Leading Indicators going Leading Indicators: anticipate where the economy is going by tracking: a) number of building permits issued b) average worker hours (manufacturing) c) average weekly unemployment claims d) stock prices of 500 common stocks 1930’s Depression Worst Ever
Predicting the Cycle current Coincident Indicators: reflect the current economic status: a) personal income a) personal income b) sales volume b) sales volume c) industrial production c) industrial production
Predicting the Business Cycle Lagging Indicators: what has taken place after a change in the cycle: a) use of consumer credit b) size of business income