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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.
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)
United States’ GDP
– 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!
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
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)
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
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)
• Read: GDP – The Measure and Mismeasure of the Economy
• http://www.cbc.ca/money/story/2008/06/16/f-economygdp.html
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
Introduction to Agricultural Economics, 6e
Penson | Capps | Rosson | Woodward
Copyright © 2015, 2010 by Pearson Education, Inc.
All Rights Reserved
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
National income = GDP
Introduction to Agricultural Economics, 6e
Penson | Capps | Rosson | Woodward
Copyright © 2015, 2010 by Pearson Education, Inc.
All Rights Reserved
Measurement of Gross Domestic
Product
Introduction to Agricultural Economics, 6e
Penson | Capps | Rosson | Woodward
Copyright © 2015, 2010 by Pearson Education, Inc.
All Rights Reserved