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Introduction to Agricultural and
Natural Resources
Overview of Macroeconomics
FREC 150
Dr. Steven E. Hastings
Overview of Macroeconomics
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Major Topics
Definition
Circular Flow of Income (Again)
Macroeconomic Indicators
National Income Accounts
Summary: Where are We Going?
– Macroeconomics
– Stock Market
– Food and Fiber System
Overview of Macroeconomics
• Macroeconomics focuses on the “Circular Flow of
Income, Resources and Products” as a whole, not
individual entities (firms, consumers, etc.)
• Macroeconomics focuses on broad aggregates such as
GDP, unemployment and inflation. Penson et al. 2009
• “Macroeconomists study aggregated indicators such as
GDP, unemployment rates, and price indices to
understand how the whole economy functions.”
http://en.wikipedia.org/wiki/Macroeconomics
Macroeconomics: How do we measure,
analyze and influence this?
Figure 12.3 - Penson
Macroeconomic Indicators
• Many, many macroeconomic indicators
(measures) exist – 1,000’s!
• Socioeconomic Indicators:
– Population ( http://www.census.gov/
– Income (www.census.gov)
• Economic Indicators:
– unemployment rates
http://www.bls.gov/
– interest rates
www.bankrate.com
- stock prices
WSJ, Market Data Center
- Consumer Price Index
http://www.bls.gov/cpi/
- Consumer Confidence
CCI, Wikipedia
National Income and Product Accounts
• A national accounting system (much like a
business would use) started in the 1930’s
(post-Depression) to measure and monitor
the value of economic activity in the U. S.
economy.
• Viewed the economy much like a business.
– Focused on income, expenditures and products
produced.
– Continually modified and improved.
National Income Acounts
• Most important measure • Gross Domestic Product (GDP) – a single dollar
value of the total of all goods and services
produced in the United States whether by
domestic or foreign resources.
• A measure of growth in the economy and a
basis for other measures.
Introduction to Agricultural Economics, 6e
Penson | Capps | Rosson | Woodward
Copyright © 2015, 2010 by Pearson Education, Inc.
All Rights Reserved
Ways to measure GDP
• There are 2 ways to measure GDP – provides a
system of “check and balances”
– Expenditure Method – looks at product markets the sum of all sales of goods and services in the
economy.
Very famous equation!
• GDP = Consumption + Investment + Gov’t Expenditures
+ (Exports – Imports)
We can measure macro economic activity in either resource markets
or product markets. Result is the same…
Introduction to Agricultural Economics, 6e
Penson | Capps | Rosson | Woodward
Copyright © 2015, 2010 by Pearson Education, Inc.
All Rights Reserved
United States’ GDP
Figure 12–4
As a point of reference, real GDP fell by 8.5%, 6.5% and 12.9%
annually over the 1930–1932 period.
Introduction to Agricultural Economics, 6e
Penson | Capps | Rosson | Woodward
Copyright © 2015, 2010 by Pearson Education, Inc.
All Rights Reserved
– Income Method – looks at resource markets - the
sum of all expenditures on resources in the
economy.
• GDP = Employee compensation + Corporate profits +
Proprietor's Income + Rental income + Net Interest
– Both way produce the same number!
National income = GDP
Introduction to Agricultural Economics, 6e
Penson | Capps | Rosson | Woodward
Copyright © 2015, 2010 by Pearson Education, Inc.
All Rights Reserved
Nominal vs. Real GDP
• National Accounts are measures in dollars, but the dollar
“value” (the things that can be purchased with a dollar)
changes – called, inflation or deflation.
• Thus, “nominal values” must be adjusted (usually, deflated)
to determine “constant” or “real” values.
• “Constant” is outdated; government now used “Chained”
– Concept is the same, adjust for inflation; methodology is different.
– http://en.wikipedia.org/wiki/Chained_dollars
• Bottom line, it is important to distinguish between real and
nominal values when making comparisons over time.
Examples of Inflation
<< 2004
UD Tuition and Fees – Fall 2011
Source: UD Brochure , 2011
2015 – 2016: $25,000 and $44,000!!!!
UD Tuition and Fees – Fall 1968
Source: UD Undergraduate Catalog, 1968 - 1970
Keep in mind that the Minimum Wage was $1.15!
How much is U.S. GDP? Other
Countries?
• Web Sites from the Reading List
– Macroeconomic Analysis
– Overview of the U. S. Economy: Perspective from
the BEA Accounts
– ERS/USDA International Macroeconomic Data Set
– List of Countries by GDP (nominal)
Related Measures in the National
Income Accounts
• Basis for a series of related measures:
• Gross National Product
• Net National Product and Net National Income
• Personal Income and Disposable Personal Income
• See the U.S. Statistical Abstract
Table 12–2
GDP: What's In and What's Not
Introduction to Agricultural Economics, 6e
Penson | Capps | Rosson | Woodward
Copyright © 2015, 2010 by Pearson Education, Inc.
All Rights Reserved
Issues with GDP
• Problems - depend on the purpose:
• GDP includes:
• pollution control – pollute a river, clean it up and
increase GDP!
• clean up from natural disaster • war expenditures – go to war and increase GDP!
Issues with GDP
• GDP excludes:
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leisure activities – a nice walk or bike ride!
volunteerism
income distribution considerations
private transactions (bartering)
• Gross Domestic Product (GDP) as a Measure of
Welfare/Growth/Development
Summary
• Macroeconomic is concerned with the
performance of our overall economy.
• Our economy is measured and monitored via
a series of socioeconomic and economic
indicators.
• Where are we going?
– Macro> Stock Market> Food and Fiber System