ECONOMIC INDICATORSTo demonstrate awareness of key

macroeconomic indicators

DEFINITION

A piece of economic data (statistic) indicates the direction of an economy.

USES:

used by investors to understand present or future investment possibilities

Used by economists to judge the overall health of an economy.

EXAMPLES

Inflation rate (CPI) Production activity (GDP) Unemployment figures Standards of living (HDI)

KEY MACRO ECONOMIC INDICATORS

GDP GNP NNP HDI CPI (inflation) Unemployment Trade position

Gross Domestic Product

the total value of goods and services produced in a country during one year.

GR

OS

S D

OM

ES

TIC

PR

OD

UC

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So what does this

mean???

GDP

C =Household Consumption

G =Government Spending  

 I = gross private investment

 (X - M) = the net exports 

GDP is a number that shows the worth (value)of the output of a country in local currency

GDP = C + G + I + (X - M)

Some Notes on GDP

It measures the value of economic activity within a country in one year..

It helps investors and economists understand business cycles

so

UNDERSTANDING GDP

NOMINAL GDP

REAL GDP

GDP PER CAPITA

What is the

difference?

NOMINAL GDP REAL GDP GDP PER CAPITA

Nominal GDP is the market value (money-value) of all final goods and services produced in a geographical region, usually a country

Real GDP is a measure of the value of output economy, adjusted for price changes (it takes into account inflation)

GDP per capita = GDP per person ….. __GDP___ population = the amount of GDP that each individual gets

GDPPURPOSE: (Why is it important)?

• It gauges the health of the economy• It indicates economic growth• WHEN GDP is HIGH• >>> HIGHER PRODUCTION LEVELS >>> LOW UNEMPLOYMENT >>> HIGHER WAGES (Demand for labour is high) >>> GREATER SPENDING

Gross National Product

An economic statistic that includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy ...

GNP = C + G + I + NX +NFP

The difference between GDP and GNP

GNP is the sum value of all goods and services

produced by permanent residents of a country

regardless of their location

SO it means ….

GNP means the total of all business production and service sector industry in a country plus its gain on overseas investment. 

DIF

FER

EN

CE B

ETW

EEN

G

DP

AN

D G

NP

GD

PG

NP

Measuring all income earned within a country, or by measuring all expenditures within the country

Read more: http://www.investorwords.com#ixzz3E6xk9h18

GDP, plus income from foreign sources, less income paid to foreign citizens and entities

Read more: http://www.investorwords.com#ixzz3E6xuyviq

WHY is it IIMPORTANT?

It measures both the size and direction of economic activity (growth, stagnation or contraction)

Shows the relative strength of the nations economy compared to that of other nations

NNP Net National Product

What it is: 

Net National Product (NNP) is the market value of a nation's goods and services minus depreciation (often referred to as capital consumption).

NNP = Gross National Product – Depreciation

Depreciation measures the amount of GNP that must be spent on new capital goods to

maintain the existing  physical stock.

FORMULA

DEPRECIATION …Consumption of

fixed capital

CAPITAL CONSUMPTION ALLOWANCE

• amount of depreciation included in the Gross Domestic Product (GDP).

• • normally around 11% of GDP.

• * This amount is subtracted from GDP, (it is "used up“ during the year.

SO…

This amount is subtracted from GDP. WHY?• it is needed to

maintain the productive capacity of the economy

Productive capacity is maximu

m output

WHY it matters…

NNP is a measure of how much a country can consume in a given period.

the total value of a nation's annual output of goods and services minus the value of capital goods used up in the production of this output

HUMAN DEVELOPMENT INDEX (HDI)

to measure and rank countries' levels of social and economic development

based on four criteria- life expectancy, - education, and - income- standard of living

HDITHE HDI MAKES IT POSSIBLE TO:• track changes in development levels

over time and • compare development levels in

different countries.

Why is it importan

t ?

A COMPARISON

Why do many countries with a high gross domestic product end up with human development index ratings lower than other developed nations with lower GDPs?

1. It's difficult to balance spending on things that increase HDI while being an international GDP leader. 

2. The pursuit of wealth affects HDI negatively. 

3. It's very difficult for any people or government to achieve gains in all areas of life.

CONSUMER PRICE INDEX (CPI)

A measure of changes in the purchasing-power of a currency and the rate of inflation.

CPI measures:1) price changes 2) cost of living

changes.

USED BY:

Government Business Labour Private citizens

USES

Used to measure inflation Guides the president when making

economic decisions

Shows the effectiveness of government policy

Shows trends to help formulate future fiscal and monetary policy

CPI CPI is used to

calculate the actual inflation rate,,, HOW?

CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.

CPI FORMULA

CPI = Current year Price --------------------------- x100 Base year price

INFLATION = CPI current year – CPI previous year

--------------------------------------------------- X 100 CPI previous year

What does it mean?

It tells us how much cost of living has risen due to price changes

What does this show?

CO

NS

UM

ER

PR

ICE IN

DEX

(CPI)

The consumer price index or CPI is a

more direct measure than per

capita GDP of the

standard of living in a country

GDP vs CPI ????

reflects prices of all goods and services produced within the country, whereas CPI reflects the prices of a representative basket of goods and services purchased by the consumer

The CPI measures changes in prices over time while the GDP measures changes in production.

UNEMPLOYMENT RATE

 is a measure of the percentage of unemployed workers in the workforce.

VOCABULARY

Choose 5 economic indicators from the word pic and explain what they mean.