Download Ch._10

Ch. 10, Sec. 1 – Gross Domestic
Product
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Macroeconomics -
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The study of entire economies
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National income accounting -
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The tracking of production, income and
consumption for a nation's economy
Economists hope to be able to predict economic
performance by studying the past and current
performance
Gross Domestic Product (cont)
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Gross Domestic Product (GDP) The total dollar value of all final goods and services
produced within a country during one calendar year
1) Final Output To avoid double counting, only count the final
product not intermediate products
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2) Current Year -
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Sales of secondhand products not included
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3) Output Produced Within National Borders -
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Counts goods produced by foreign companies within
our borders
GDP (cont)
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World Rank GDP (2006, $Billions)
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1) European Union - $14,527
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2) United States - $13,245
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3) Japan - $4,367
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4) Germany - $2,897
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5) China - $2,630
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6) United Kingdom - $2,373
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7) France - $2,231
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8) Italy - $1,852
GDP (cont)
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How is GDP determined?
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Four sectors of product market are combined:
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1) Personal consumption expenditures (C)
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2) Gross Investment (I), total value of all capital
goods produced
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3) Government purchases (G)
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4) Exports minus imports (X-M)
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Output-expenditure model
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C+I+G+(X-M)= GDP
GDP (cont)
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Nominal GDP Expressed in the current prices of the period being
measured
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Real GDP -
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Adjusted for price changes (inflation)
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1996 – 2000
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Nominal GDP increased by 26%, real GDP
increased by only 18%
GDP (cont)
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Limitations of GDP -
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Accuracy and timeliness of data
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Non-market activities (barter, housework, chores)
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Underground economy (unreported/illegal activities)
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Externalities (“goods” and “bads”)
Other National Income Measures
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Gross National Product All final output produced by factors of production
owned by residents of a country
National Income Employees and owners income, corporate profits
and net interest
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Personal Income -
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All income earned by individuals
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Disposable personal income -
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Total amount of income available to spend/save
Ch. 10, Sec. 2 – Business Cycles
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Four phases to the business cycle:
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1) Expansion (recovery) -
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From 1940-44, GDP increased from $99.7B to
$210.1B – Why?
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2) Peak -
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Economy is at its strongest, high demand
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3) Contraction (recession) -
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Decline in real GDP for 2 or more quarters
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4) Trough -
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Demand, production and employment at lowest
Business Cycles (cont)
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Influences on the business cycle:
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1) Business investment -
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Higher investment, higher production and new
development
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2) Money and credit -
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Output varies with availability of credit
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3) Public expectations -
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Consumer spending varies based on their feelings
about the economy
4) External factors -
Business Cycles (cont)
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Predicting the cycle -
Economists use three types of indicators to
determine which phase of the cycle the economy is
currently in:
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1) Leading indicators -
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To anticipate the direction the economy is heading
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Building permits, new orders, price of raw matls
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2) Coincident indicators -
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Provide information about current conditions
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Personal income, sales, industrial production
Business Cycles (cont)
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3) Lagging indicators These happen after an upturn or downturn and may
help predict the duration of it
Consumer credit
Ch. 10, Sec. 3 – Economic Growth
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How do we measure economic growth?
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Increase in real GDP per capita
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US - $13T/300M=
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China - $2.6T/1.2B=
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The importance of economic growth -
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1) Increase the standard of living
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2) Competing in world markets
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3) Increasing domestic resources
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More tax payers
Economic Growth (cont)
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Requirements for economic growth -
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LAND (natural resources)
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LABOR (human resources)
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CAPITAL
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ENTREPRENEURSHIP
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Increasing Productivity -
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1) Technological advances
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2) Capital deepening -
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Production of capital goods increases faster than size
of workforce
Economic Growth (cont)
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3) Educated/Skilled labor force
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4) Motivation, dedication and loyalty
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Productivity in the US -
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Productivity growth has slowed since the 1960s
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Decreased savings and investment
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Decreased investment in research & develop.
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Increased gov't regulation
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Shift to service based economy