MACROECONOMICS ECONOMIC PERFORMANCE AND CHALLENGES MACROECONOMICS The study

MACROECONOMICS ECONOMIC PERFORMANCE AND CHALLENGES

MACROECONOMICS The study of economic behavior and decision-making in a nation’s whole economy

OBJECTIVES • • Explain how gross domestic product (GDP) is calculated Interpret GDP Data Identify factors that influence GDP Describe other output and income

ECONOMIC MEASURES National Income Accounting A system used to monitor the U. . S. economy

NATIONAL INCOME ACCOUNTING • Economist use this system by collecting and organizing macroeconomic statistics on production, income, investment, and savings. The Department of Commerce then presents these data in the form of National Income Products and Accounts (NIPA). The government uses the NIPA data to determine economic policies

GROSS DOMESTIC PRODUCT

GROSS DOMESTIC PRODUCT The most important measure of NIPA is GDP, the dollar value of all goods and services produced in a country’s borders in a given year

THE EXPENDITURE APPROACH Government economist calculate the GDP in two ways. In one method they use the expenditure approach, sometimes called the output expenditure approach. First, economist estimate the annual expenditure, or amounts spent, on four categories of final goods and services: 1. Consumer goods 2. Business goods and services 3. Government goods and services 4. Net exports

EXPENDITURE APPROACH

INTERMEDIATE GOODS Products used in the production of final goods

DURABLE GOODS AND NONDURABLE GOODS Durable Goods Nondurable Goods

INCOME APPROACH This method calculates GDP by adding up all the incomes in the economy. The rationale for this approach is that when a firm sells a product or service, the selling price minus the dollar value of goods and services purchased from other firms represents income for all firms’s owners and employees.

INCOME APPROACH

TWO MEASURES OF GDP Nominal GDP Measured in current prices Real GDP expressed in constant , or unchanging prices

NOMINAL VS REAL GDP

WHAT THE GDP DOESN’T MEASURE • Nonmarket Activities • The Undergrown Economy • Negative Externalities • Quality of Life

OTHER ECONOMIC MEASURES

FACTORS THAT AFFECT THE GDP • Aggregate Supply • Aggregate Demand • Aggregate Equilibrium

AGGREGATE SUPPLY The total amount of goods and services in the economy available at all price levels

AGGREGATE DEMAND The amount of goods and services that will be purchased at all possibles price levels

GROSS NATIONAL PRODUCT

GROSS NATIONAL PRODUCT The annual income earned by a nation’s companies and people

DEPRECIATION The loss of the value of capital equipment that results from normal wer and tear

The End