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Why was Macroeconomics created?
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When the Great Depression occurred, the economic ideas and theories of the day couldn't explain what was happening.
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Who created Macroeconomics?
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John M. Keynes
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What does Macroeconomics measure?
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it measures the overall health of the economy.
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What does Macroeconomics collect?
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It collects data on income, output, employment, prices, etc.
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What does the National Income Accounting measure?
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The National Income and Product Accounts (NIPA) measure economic output and national income.
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Who collects the data for the National Income and Product Accounts (NIPA)?
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The Department of Commerce (DOC)
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How do you find the GDP?
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Add up income and add up spending OR something??
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What is the circular flow diagram?
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Households and firms interact through product and resource markets, and economic aggregates can be determined by either examining spending flows or income flows to households.
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What do households do in the circular flow diagram?
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Households supply labor and other resources to the market and become employees of businesses.
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What do businesses do in the circular flow diagram?
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The businesses use the resources to produce goods and services.
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How to the households benefit from the circular diagram?
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The households get paid wages and salaries for their labor, and then can use income to purchase goods and services in the product market.
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What is an example of the circular flow diagram?
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I buy a Chevy Tahoe (AKA Spending). GM and employees get revenue and income (AKA Income). Spending is equal to Income
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Define Gross Domestic Product (GDP)
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Total market value for all goods and services produced ina given period of time
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What are the three uses of GDP data?
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1. Measure Standard of Living
2. Measure Economic Growth
3. Measure Business Growth
2. Measure Economic Growth
3. Measure Business Growth
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Define Measure Standard of Living
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The more income per person in a country, the more goods and services they will be able to afford such as housing, health care, food, etc.
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Define Measure Economic Growth
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When real per capita GDP increases, people can buy more goods and services. Economic growth is measured as the percentage change in real per capita CDP.
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Define Measure Business Growth
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Over the long run we expect consistent economic growth. However there are times when economy performs poorly and times when it exceeds expectations.
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Define Recession
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short-term economic downturn.
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What is another name for recession?
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economic contraction
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How many quarters of negative GDP growth does it take to be considered a recession?
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2
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Define economic expansion
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Short-term period of faster than normal economic growth
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Define business cycle
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alternating increases and decreases in economic activity
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What are the 4 parts of the business cycle?
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1. Peak
2. Downturn/contraction
3. Trough
4. Recovery/Growth
2. Downturn/contraction
3. Trough
4. Recovery/Growth
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What National Bureau of Economic Research (NBER) do?
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It collects data on the economy and announces when the economy has entered a recession.
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How is GDP computed?
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1. Market Values
2. Goods and Services
3. Final Goods and Services
4. Within a Country
5. Specific Period of Time
F. Sale of Used Goods NOT Included in GDP
2. Goods and Services
3. Final Goods and Services
4. Within a Country
5. Specific Period of Time
F. Sale of Used Goods NOT Included in GDP
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What is market value?
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The price recorded; what it sells for
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GDP measures value by
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recognizing both quantity and prices of goods produced.
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What computing GDP we need to consider what 2 things?
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Physical goods (cars, computers) and Services (haircuts, tax returns)
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As the service sector has expanded in the US, which sector in particular has declined?
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Manufactoring
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GDP measures the market value of final goods and services produced, not what?
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intermediate goods.
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How is the value of intermediate goods used?
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It is used to produce the final good and value.
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What is an example of final goods and services?
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Snickers Bar
The ingredients (intermediate goods) are included in total price of Snickers bar (final good) itself.
The ingredients (intermediate goods) are included in total price of Snickers bar (final good) itself.
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Define GDP within a country?
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GDP is a measure of output produced domestically
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What is produced inside the US that is included in the US GDP?
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Output of foreign-owned firms
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What is not included in the U.S. GDP?
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goods and services produced abroad, even if the producers are American citizens or companies.
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What is the period of time that the GDP measures?
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quarterly and yearly
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What is an example of Used Goods NOT included in GDP?
answer
If you buy an '08 Honda Civic from friend, it's not included in GDP
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What is consumption?
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final goods and services purchased by households and individuals
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What are durable goods?
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Goods with a lifespan of 3 or more years. Ex. cars, appliances, mattress
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What are Nondurable goods?
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Lifespan of less than 3 years. Ex. Clothing, toys, diapers, groceries
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What are services?
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Ex. Tax return, auto repair, fast food
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What is an investment?
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Private spending on such things as buildings, equipment, tools, and software. In addition, changes in business inventories are also included.
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What is fixed nonresidential?
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Ex. New manufacturing plant, new fast food restaurant, new computers, tools, equipment, and even software
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What are changes in business inventories?
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If a firm increases its inventories, this is a positive inventory investment and it increases the value of GDP
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What are government purchases?
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Purchase of final goods and services by the government. Also includes wages and salaries of government employees
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What is an example of Federal purchases?
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Presidents salaries, USAF buys a new jet
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What is an example of state and local purchases?
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Governor's salary, paving roads, building bridges
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What is not included in government purchases? Why?
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Transfer payments such as food stamps are not include in government purchases since it does not result in the production of new goods and services
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Define net exports (NX)
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Exports (ex) minus imports (Im).
NX= Ex - Im
NX= Ex - Im
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Define exports
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items we sell overseas. Ex- Boeing Sells Jets to Air Force
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Imports-
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items we buy from overseas. Ex. Clothing from Vietnam, car from Japan
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Typically the U.S. imports are greater or less than exports?
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greater. We have negative net exports. This decreases the GDP.
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Question- In 2012, C=$11.29 trillion, I = $2.50 trillion, G= $3.15 trillion, NX= -$0.52 trillion. What was the value of goods and services produced in 2012?
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16.42 trillion
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What are some things that add value to the economy but are not technically included in the GDP?
answer
non-market goods, underground economy, environmental quality, leisure time
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Example of non-market goods
answer
mom raising children at home
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example of underground economy
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workers are paid cash under the table
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example of environmental quality
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China has high GDP growth rates but poor environmental quality
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Example of leisure time
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income per person in the US (51,000)
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Question: What other factors could be potentially be included in GDP calculations to make them a more accurate gauge of standard of living?
answer
quality of work, lifespan and health, happiness
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How to calculate the GDP?
answer
Find the market value of each final good and add them together.
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What is nominal GDP?
answer
value of goods and services evaluated at current year prices
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Question: What happens to the GDP is the prices of all goods and services double in 2014?
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2014 nominal GDP would double, must account for price changes
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What is Real GDP?
answer
The value of goods and services evaluated at base year prices. (adjusting for inflation. )
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How is Real GDP calculated?
answer
by designating a particular year as a base year and then using the prices of goods and services in the base year to calculate the value of goods and services in all other years.
Ex. If the base year is 2008, real GDP for 2013 would be calculated by using prices of goods and services from 2008 but quantities from 2013.
Ex. If the base year is 2008, real GDP for 2013 would be calculated by using prices of goods and services from 2008 but quantities from 2013.
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