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Macroeconomic Performance

GDP: National Output

Macroeconomics is the part of economics that deals with the economy as a whole and uses aggregate measures of output, income, prices, and employment.

Gross domestic product (GDP) is the dollar value of all final goods, services, and structures produced within a country’s national borders during a one-year period.

What is the National Income and Product Account (NIPA)? http://www.bea.gov/

How is GDP calculated? (Figure 12.1) Total Revenue = Price X Quantity Goods, Services and Structures What are structures? What are scientific sampling

techniques?

GDP measures the final output. Intermediate products are not

included in GDP. Secondhand sales are not included

in GDP. Nonmarket transactions are not

included in GDP. Transactions from the underground

economy are not counted in GDP.

Real GDP vs. Nominal GDP Nominal GDP is calculated in

today’s prices and is not adjusted for inflation. Your textbook calls this current GDP.

Real GDP is adjusted for inflation. A base year serves as a point of comparison for other years.

Pros and Cons of GDP

GDP per Capita adjusts GDP for population and can be expressed in real or nominal dollars.

What are the limitations of GDP? GDP does not tell us anything about

the composition of output. What goods, services and structures are actually being produced?

GDP does not take into consideration quality of life issues. What are the opportunity costs of increased production?

GDP does not take into consideration whether or not the economic activity is positive or negative. Many people in the social services believe they are successful if the work themselves out of a job, but this actually decreases GDP

How does GDP relate to the standard of living? GDP is the most

prominent indicator of economic health.

Increases in real GDP means that jobs are plentiful and incomes are rising.

GAPMINDER GRAPHSwww.gapminder.org

GNP (National Income)

Gross national product (GNP) is the total dollar value of all final goods, services, and structures produced in one year with labor and property supplied by the country’s residents, regardless of where the production takes place.

When business activity creates output, it generates jobs and income for somebody. This income is GNP.

To find GNP, economists start with GDP. They add in all of the payments received from outside the USA and then subtract all of the payments made to foreign owned business within the USA.

The net national product (NNP) is GNP minus depreciation or capital consumption allowances. This accounts for the wear and tear on capital equipment.

The national income (NI) is NNP minus all indirect business taxes. These are all taxes except for corporate profit taxes. Some examples are indirect business taxes are excise taxes, property taxes, licensing fees, custom duties, and general sales taxes.

Personal income (PI) is the total amount of income going to the consumer sector before individual income taxes are paid. Some adjustments are made. For example, payments into Social Security do not count, but payments received from Social Security do count.

Disposable personal income (DPI) is personal income minus individual income taxes. This is the actual amount of money consumers are able to spend.

Circular Flow (Revisited)

Remember the simple circular flow diagram from the introduction to this course? http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p15.swf

Yes, that was too good to be true. Reality looks more like the one from this chapter. http://glencoe.mcgraw-hill.com/sites/0078747643/student_view0/unit4/chapter12/in_motion.html

The output-expenditure model describes aggregate demand by the consumer, investment, government and foreign sectors.

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

Consumer Sector A household is the basic unit of the consumer

sector consisting of all persons who occupy a house, apartment, or separate living quarters.

Consumers receive their income in the form of disposable personal income, and they account for the largest sector in the economy.

Investment Sector This is the business sector and includes all firms

that are responsible for producing the nation’s output. The investment sector receives its income through profits.

Government Sector This includes local, state and federal

governments that receive their income through taxes.

Foreign Sector The net exports of goods and services

equals the total exports minus the total imports. (X-M)

This sector includes all consumers and producers outside of the country. The number might appear small despite thriving trade.

Population and Economic Growth

The Constitution requires a census, or official count of all people living in the United States, every 10 years.

The census data is organized in different ways. For example, data can be divided into urban and rural populations.

Population continues to grow in the United States, but the rate of growth is declining. The current rate of growth is less than 1%. The size of the average household is also declining.

The census can also help to show regional changes in population. Since 1970, Americans have been moving to the western and southern parts of the United States.

The center of population is the point where the country would be balanced if it could be laid flat and everyone weighed the same. http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p331.swf

By finding per capita rates for economic indicators, economists can make meaningful comparisons between countries.

What are some projected population trends?

The baby boomers represent the historically high birthrate years in the United States after WWII from 1946 to 1964. They can be seen as the pinnacle on the population pyramid.

The dependency ratio shows the number of children and elderly people in the population for every 100 persons in the 18 to 64 working-age bracket. It is growing at a high rate and is projected to reach 78% by 2040.

Demographers study growth, density, and other characteristics of populations. For example, they use data about fertility rates, life expectancies and immigrations rates to predict changes in population.

Although the population rate for the United States is expected to continue to decline, increases in productivity will most likely offset the negative effects of declining population growth.

Because we will be dealing with an increasingly elderly population, there will most likely be a shift in our economy to meet this demand.

Poverty and Income Distribution

A portion of the US population lives in poverty, and the gap in the distribution of income is widening every year.

The poverty threshold is the annual dollar income used to determine the number of people in poverty. It does not take into consideration supplements such as food stamps, subsidized housing and Medicaid.

Poverty is a relative measure that depends on prices, the standard of living, and the incomes that others earn. What seems like poverty to one man may be richness to another!

Poverty guidelines are used by the government to determine eligibility for certain federal programs.

Economists also determine how income is distributed among households. They do this by raking all households from highest to lowest and then dividing them into quintiles.

The Lorenz curve shows how the actual distribution of income differs from equal distribution.

Reasons for Income Inequality

Anti-Poverty Programs