# GDP and the Measurement of Progress

Save this PDF as:

Size: px
Start display at page:

## Transcription

1 Chapter 6 (Chapter 26) MODERN PRINCIPLES OF ECONOMICS Third Edition GDP and the Measurement of Progress

2 Outline What Is GDP? Growth Rates Nominal vs. Real GDP Cyclical and Short-Run Changes in GDP The Many Ways of Splitting GDP Problems with GDP as a Measure of Output and Welfare 2

3 Introduction India has both extreme poverty and rapid economic growth: Two-thirds of India s population lives on less than \$2 a day. At the same time, at least 100 million people are at an American standard of living. a remarkable increase from just a few decades ago. Gross Domestic Product (GDP) and GDP per capita gives us a way to measure changes in economic output and the standard of living. 3

4 Introduction Real GDP per capita in India 4

5 Definition Gross Domestic Product (GDP): the market value of all final goods and services produced within a country in a year. GDP per capita: GDP divided by population. 5

6 Introduction In this chapter, we will explain: What the GDP statistic means and how it is measured. The difference between the level of GDP and the growth rate of GDP The difference between nominal GDP and real GDP How growth in per capita real GDP is a standard measure of economic progress The use of GDP in business cycle measurement Problems with GDP as a measure of output and welfare 6

7 Introduction 7

8 GDP GDP is the market value of all final goods and services produced within a country in a year. An economy s total output includes millions of different goods and services. Some goods are more valuable than others, so we can t just add up quantities. GDP uses market values to determine how much each good or service is worth and then sums the total. 8

9 GDP Final goods and services are sold to final users and then consumed or held in personal inventories. Intermediate goods are sold to firms and then bundled or processed with other goods or services for sale at a later stage. To avoid double counting, only final goods are included in GDP. However, machinery and equipment used to produce other goods are included in GDP. 9

10 GDP GDP measures production, so sales of old houses, used goods, and financial assets do not add to GDP. Sales of used goods: NOT included Sale of financial assets: NOT included Services of stockbrokers, realtors, used car salesmen ARE included Products produced by not sold in same year are included as inventory 10

11 Self-Check Which of the following is a final good: a. A book in Amazon s inventory. b. Tires purchased by a Toyota plant. c. Tires purchased by you for your car. Answer: c tires purchased by you are a final good because they are for your own use (consumption), not for resale. 11

12 GDP Services are increasing as a share of U.S. GDP. The output of an economy includes both goods and services. Haircuts, transportation, and medical care provide a benefit to individuals without a tangible output. Since 1950, the portion of U.S. GDP created by services has doubled from 21% to 42%. 12

13 GDP U.S. GDP includes goods and services produced by labor and capital located in the United States, regardless of the nationality of the workers or property owners. Gross national product (GNP) is similar to GDP but measures what is produced by the labor and property supplied by U.S. permanent residents. 13

14 Definition Gross National Produce (GNP): the market value of all final goods and services produced by a country s permanent residents, wherever located, within a year. 14

15 GDP GDP tells us how much the nation produced in a year, not how much it has accumulated in its entire history. GDP is like annual income, not wealth National wealth refers to the value of a nation s entire stock of assets. GDP is calculated by the Bureau of Economic Analysis (BEA), which is part of the Department of Commerce and based in Washington, D.C. 15

16 US GDP vs Rest of World (ROW) 16

17 GDP Growth = Job Growth 17

18 Growth Rates GDP tells us how much a country produced. The growth rate of GDP tells us how rapidly the country s production is rising or falling. GDP2013 GDP = GDP 2012 GDP growth rate for 2013 Using actual numbers (in billions): \$16,798 \$16,245 \$16, = 3.4% 18

19 Self-Check If GDP in 1990 was \$5,803 billion and GDP in 1991 was \$5,995 billion, what was the growth rate of GDP? a. 1.92% b. 3.20% c. 3.31% Answer: c The growth rate was [( ) / 5803] x 100 = 3.31% 19

20 Nominal vs. Real GDP Nominal Growth Rate is the rate of growth just calculated did not adjust for price changes and is called the nominal growth rate. Nominal GDP is calculated using prices at the time of sale. GDP in 2013 is calculated using 2013 prices. GDP in 2000 is calculated using 2000 prices. If there is an increase in nominal GDP, we can t tell if it was due to greater production or increased prices. It is increases in production, not increases in prices, that improve the standard of living. 20

21 Definition Nominal variables: variables such as GDP that have not been adjusted for changes in price. 21

22 Nominal vs. Real GDP To remove the effect of price changes, we can calculate GDP in constant prices GDP in 2013 dollars: 2013 prices 2013 quantities = \$16.8 trillion 2000 GDP in 2013 dollars: 2013 prices 2000 quantities = \$13.8 trillion We can now find the increase in real GDP. 22

23 Definition Real variables: variables such as GDP that have been adjusted for changes in prices by using the same set of prices in all time periods. 23

24 Nominal vs. Real GDP 2013 nominal GDP 2013 prices 2013 quantities \$16.8 trillion 2000 nominal GDP 2000 prices 2000 quantities \$10.3 trillion Increase in nominal GDP = ( ) / = 63% 2013 real GDP 2013 prices 2013 quantities \$16.8 trillion 2000 real GDP 2013 prices 2000 quantities = \$13.8 trillion Increase in real GDP = ( ) / = 21.7% 24

25 Real GDP Growth per Capita Growth Rate in Nominal GDP = Inflation Rate (change in price level) + Growth Rate in Real GDP Real GDP growth = (Nominal GDP growth rate) (Inflation rate) where the growth rate in nominal GDP is the growth rate in spending (C + I + G + NX) So if Nominal GDP growth is 5%, it could be: 1% inflation + 4% growth in Real GDP or 2% inflation + 3% growth in Real GDP or 5% inflation + 0% growth in Real GDP 25

26 Real GDP Growth per Capita 26

27 Self-Check Real GDP is: a. Adjusted for changes in the price level. b. Not adjusted for changes in the price level. c. Adjusted for price increases but not decreases. Answer: a Real GDP is adjusted for changes in the price level. 27

28 GDP Deflator The GDP Deflator is a price index that can be used to measure inflation. It is the ratio of nominal to real GDP: Nominal GDP GDP Deflator = 100 Real GDP If 2013 nominal GDP = \$16.79 trillion and 2013 real GDP = \$15.76 trillion, 1 t G D tr D e = ri = P f 0 6 l. i. a 5 t 28

29 Real GDP Growth The Growth Rate of Real GDP in the U.S. 29

30 Real GDP Growth per Capita Growth in real GDP does not account for changes in population. Growth in real GDP per capita is usually the best reflection of changing living standards. There can be large differences for countries with rapidly growing populations. 30

31 Real GDP Growth per Capita Country %annual growth real GDP % annual growth population % annual growth real GDP per capita Guatemala 3.6% 2.8% 0.8% United States 3.6% 1.2% 2.1% Source: Bureau of Economic Analysis, and the U.S. Census Bureau Even though the U.S. and Guatemala had the same growth rate of real GDP, the standard of living in the U.S. grew much faster. 31

32 Real GDP Growth per Capita Fifty Years of Economic Growth 32

33 Cyclical and Short-run Changes GDP is used to compare economic output across countries and over long periods. GDP is also used to measure short-run fluctuations in an economy. According to the National Bureau of Economic Research (NBER), a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale retail sales. 33

34 Definition Recession: a significant, widespread decline in real GDP and employment. (Unofficially two quarter of negative real GDP growth) 34

35 Cyclical and Short-run Changes U.S. Recessions Since 1948 Quarterly Growth Rates Expressed as Annualized Rates 35

36 Cyclical and Short-run Changes Defining when a recession begins and ends is not always easy. Quarterly data are not available until almost a month after the quarter is over. The government often makes significant changes in the GDP estimates between the initial and final estimates. Updates can even occur years after the first estimates are released. It is normal for real GDP to fluctuate around its long-term trend or normal growth rate (business fluctuations or cycles). 36

37 Cyclical and Short-run Changes Why is dating recessions so import? Dating the 2001 recession - Official NBER starting date is March Data revisions have led many analysts to conclude that the recession began late Who cares? U.S. Presidency changed at the beginning of Democrats: Recession was a result of the new administration policies. Republicans: Recession began during President Clinton s term. 37

38 Definition Business cycles: short-run movements in real GDP around its long-term trend. 38

39 Self-Check A widespread decline in real GDP and employment is called: a. Inflation. b. Recession. c. A business cycle. Answer: b a decline in real GDP and employment is called a recession. 39

40 Splitting GDP Economists split the production of goods and services in many different ways. Two common ways are: 1. National spending approach add up the components of spending: Y = C + I + G + NX 2. Factor income approach add up the income generated by producing goods and services: Y = Wages + Rent + Interest + Profit 40

41 National Spending Approach Y = C + I + G + NX Y C I G NX Nominal GDP The market value of all finalgoods and services. Consumption Privatespending on final goods and services. Investment Government purchases Net exports Private spending on tools, plant, and equipment used to produce future output. Spending by all levels of government on final goods and services. Transfers are not included in government purchases. The value of exports minus the value of imports. 41

42 National Spending Approach U.S. GDP and Its Components,

43 Factor Income Approach Y = Employee Compensation + Rent + Interest + Profit When a consumer spends money, the money is received by workers, landlords, owners of capital, and businesses. We can therefore calculate GDP by adding up all of the incomes received. When using the factor income approach, we need to make adjustments for things like sales taxes. 43

44 Factor Income Approach Employee Compensation: Salaries, wages, and fringe benefits such as health or retirement. This also includes unemployment insurance and government taxes for Social Security. Rent: Income received from property received by households. Royalties from patents, copyrights and assets as well as imputed rent are included. Interest: Income received by households through the lending of their money to corporations and business firms. Government and household interest payments are not included in the national income. Profits: The amount firms have left after paying their rent, interest on debt, and employee compensation. GDP calculation involves accounting profit and not economic profit. 44

45 Which Approach is the Right One? The answer depends on what you want to study. Want to understand business fluctuations? It s worthwhile to study the national spending approach. Want to study how the income from production is divided amongst people and resources? It s worthwhile to focus on the factor income approach. 45

46 Self-Check Which of the following splits GDP according to the national spending approach? a. C + I + G + NX. b. Revenues - expenses. c. Employee compensation + rent + interest + profit. Answer: a C + I + G + NX. 46

47 The BIG Question Consider the following two claims. The first would be a typical statement at the magazine The Nation: Europeans have strong labor unions, so their workers get a bigger share of the pie than American workers. The second would be a typical statement at the magazine National Review: Since European businesses are highly regulated, they have little incentive to make big profits. Therefore, they get a much smaller share of national product than American workers. Which statement is more correct/do you agree with more? a) The first b) The second 47

48 Problems With GDP Illegal or underground-market transactions are omitted from GDP. Underground transactions are especially significant in countries with higher levels of corruption and taxes. The informal sector in Latin America is estimated at 41% of officially measured GDP. In the U.S. or Western Europe, the underground economy is likely 10% - 20% of GDP. 48

49 Problems With GDP GDP does not count non priced production, when valuable goods and services are produced but no monetary payment is made. Housework, reading free blogs, volunteering This introduces two biases into GDP statistics: biases over time and biases across nations. As more women in the U.S. entered the workforce, housework shifted from unpaid to paid. Women s participation in the workforce varies across countries, changing the proportion of work included in GDP. 49

50 Avg Hours Worked by Country Tyler Cowen and Alex Tabarrok Modern Principles: Macroeconomics, Third Edition / Modern Principles of Economics, Third Edition Copyright 2015 by Worth Publishers

51 Problems With GDP GDP does not count leisure, although people value it. GDP does not count economic bads such as pollution, crime, or the extinction of species. Cleaning up pollution ADDS to GDP GDP does not measure the distribution of income. Endless arguments can ensue 51

52 GDP & Income Distribution Tyler Cowen and Alex Tabarrok Modern Principles: Macroeconomics, Third Edition / Modern Principles of Economics, Third Edition Copyright 2015 by Worth Publishers

53 Takeaway GDP is an estimate of the economic output of a nation over a year. GDP can be summed up in different ways. The national spending identity, Y = C + I + G + NX, splits GDP according to different classes of income spending. The factor income approach, Y = Employee compensation + Interest + Rent + Profit, splits GDP into different classes of income receiving. 53

54 Takeaway GDP per capita is a rough estimate of the standard of living in a nation. Real GDP is corrected for inflation by using the same set of prices in every year. GDP does not include: The value of leisure Goods in the underground economy The value of goods that are difficult to price. How equally income is distributed. 54

### Chapter 20. The Measurement of National Income. In this chapter you will learn to. National Output and Value Added

Chapter 20 The Measurement of National Income In this chapter you will learn to 1. Use the concept of value added to solve the problem of double counting when measuring national income. 2. Describe the

### 7. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

### Economics 212 Principles of Macroeconomics Study Guide. David L. Kelly

Economics 212 Principles of Macroeconomics Study Guide David L. Kelly Department of Economics University of Miami Box 248126 Coral Gables, FL 33134 dkelly@miami.edu First Version: Spring, 2006 Current

### CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING

CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING Chapter in a Nutshell Gross domestic product was introduced in the previous chapter as a basic measure of macroeconomic performance. This chapter identifies

### Chapter 8. GDP : Measuring Total Production and Income

Chapter 8. GDP : Measuring Total Production and Income Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Related Economic Terms Macroeconomics:

### MEASURING A NATION S INCOME

10 MEASURING A NATION S INCOME WHAT S NEW IN THE FIFTH EDITION: There is more clarification on the GDP deflator. The Case Study on Who Wins at the Olympics? is now an FYI box. LEARNING OBJECTIVES: By the

### Reference: Gregory Mankiw s Principles of Macroeconomics, 2 nd edition, Chapters 10 and 11. Gross Domestic Product

Macroeconomics Topic 1: Define and calculate GDP. Understand the difference between real and nominal variables (e.g., GDP, wages, interest rates) and know how to construct a price index. Reference: Gregory

### Measuring a Nation s Income

Measuring a Nation s Income I. Review of the Definitions of Microeconomics and Macroeconomics A. Definition of microeconomics: the study of how households and firms make decisions and how they interact

### Macroeconomics Instructor Miller GDP Practice Problems

Macroeconomics Instructor Miller GDP Practice Problems 1. Gross domestic product in the economy is measured by the A) total number of goods and services produced in the economy. B) dollar value of all

### Measuring a Nation s Income THE MEASUREMENT OF GROSS DOMESTIC PRODUCT. In this chapter, look for the answers to these questions:

In this chapter, look for the answers to these questions: What is Gross Domestic Product (GDP)? 5 How is GDP related to a nation s total income and spending? What are the components of GDP? How is GDP

### CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH Learning Goals for this Chapter: To know what we mean by GDP and to use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

### The Data of Macroeconomics

CHAPTER 2 The Data of Macroeconomics Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN:... the meaning and measurement of the most important

### Unit 4: Measuring GDP and Prices

Unit 4: Measuring GDP and Prices ECO 120 Global Macroeconomics 1 1.1 Reading Reading Module 10 - pages 106-110 Module 11 1.2 Goals Goals Specific Goals: Understand how to measure a country s output. Learn

### GDP M A C R O E C O N O M I C S

GDP M A C R O E C O N O M I C S Gross Domestic Product GDP The market value of all final goods and services produced within a country during a given period of time. Breaking down the definition: 1. Market

### Chapter 24. What will you learn in this chapter? Valuing an economy. Measuring the Wealth of Nations

Chapter 24 Measuring the Wealth of Nations 2014 by McGraw-Hill Education 1 What will you learn in this chapter? How to calculate gross domestic product (GDP). Why each component of GDP is important. What

### 6. Real GDP means the value of goods and services is measured in prices. A) current B) actual C) constant D) average

Name: Date: 1. Assume that total output consists of 4 apples and 6 oranges and that apples cost \$1 each and oranges cost \$0.50 each. In this case, the value of GDP is: A) 10 pieces of fruit. B) \$7. C)

### ECONOMIC GROWTH* Chapter. Key Concepts

Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Key Concepts Gross Domestic Product Gross domestic product, GDP, is the market value of all the final goods and services produced within in a country in a given

### MEASURING GDP AND ECONOMIC GROWTH CHAPTER

MEASURING GDP AND ECONOMIC GROWTH CHAPTER Objectives After studying this chapter, you will able to Define GDP and use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

### Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9. Multiple Choice Questions

Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9 Multiple Choice Questions 1. Net domestic product is usually preferred to GDP by economists because net national product A.

### MEASURING GDP AND ECONOMIC GROWTH*

Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Gross Domestic Product Topic: GDP 1) Gross domestic product is the total produced within a country in a given time period. A) market value of all final and

### NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY

NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY 1. NIPA: GNP and GDP 2. Saving and Wealth 3. Prices and Inflation 4. Unemployment 5. Problems with Measuring the Macroeconomy There are

### GDP: Measuring Total Production and Income

Chapter 7 (19) GDP: Measuring Total Production and Income Chapter Summary While microeconomics is the study of how households and firms make choices, how they interact in markets, and how the government

### Tracking the Macroeconomy

chapter 7(23) Tracking the Macroeconomy Chapter Objectives Students will learn in this chapter: How economists use aggregate measures to track the performance of the economy. What gross domestic product,

### HW 2 Macroeconomics 102 Due on 06/12

HW 2 Macroeconomics 102 Due on 06/12 1.What are the three important macroeconomic goals about which most economists, and society at large, agree? a. economic growth, full employment, and low interest rates

### Chapter 5: GDP and Economic Growth

Chapter 5: GDP and Economic Growth Be Mean Green! Please consider the environment before printing this Chapter Outline. It ll be available online throughout the semester. For Firms private accounting measures

### Households Wages, profit, interest, rent = \$750. Factor markets. Wages, profit, interest, rent = \$750

KrugmanMacro_SM_Ch07.qxp 11/9/05 4:47 PM Page 87 Tracking the Macroeconomy 1. Below is a simplified circular-flow diagram for the economy of Micronia. a. What is the value of GDP in Micronia? b. What is

### Why expenditure = income. The Circular Flow. Circular flow. Gross Domestic Product

Gross Domestic Product Why expenditure = income Two definitions: 1. Total expenditure on final goods and services 2. Total income earned by factors of production In In every transaction, the the buyer

### Big Concepts. Measuring U.S. GDP. The Expenditure Approach. Economics 202 Principles Of Macroeconomics

Lecture 6 Economics 202 Principles Of Macroeconomics Measuring GDP Professor Yamin Ahmad Real GDP and the Price Level Economic Growth and Welfare Big Concepts Ways to Measure GDP Expenditure Approach Income

### Measuring the Aggregate Economy

CHAPTER 25 Measuring the Aggregate Economy The government is very keen on amassing statistics... They collect them, add them, raise them to the n th power, take the cube root and prepare wonderful diagrams.

### Exam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption.

Exam 1 Review 1. Macroeconomics does not try to answer the question of: A) why do some countries experience rapid growth. B) what is the rate of return on education. C) why do some countries have high

### This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Go to the special codes section on your score sheet

Instructions: This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Step I - Go to the special codes section on your score sheet Write your section number (1, or 4, or 5) under

### Chapter 11: Activity

Economics for Managers by Paul Farnham Chapter 11: Measuring Macroeconomic Activity 11.1 Measuring Gross Domestic Product (GDP) GDP: the market value of all currently yproduced final goods and services

### Chapter 5 Measuring Economic Activity: GDP and Unemployment

Chapter 5 Measuring Economic Activity: GDP and Unemployment Overview This chapter looks in detail at how economists measure two major macroeconomic variables: gross domestic product (GDP) and the unemployment

### 11.1 Estimating Gross Domestic Product (GDP) Objectives

11.1 Estimating Gross Domestic Product (GDP) Objectives Describe what the gross domestic product measures. Learn two ways to calculate the gross domestic product, and explain why they are equivalent. 11.1

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Suvey of Macroeconomics, MBA 641 Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Modern macroeconomics emerged from

### Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

### Supplement Unit 3. Gross Domestic Product (GDP): What Is It and How Is It Measured?

1 Supplement Unit 3. Gross Domestic Product (GDP): What Is It and How Is It Measured? Gross Domestic Product (GDP) is the market value of all final user goods and services produced domestically during

### Measuring Economic Performance. Chapter 2

Measuring Economic Performance Chapter 2 Outline Gross Domestic Product Measuring GDP Through Spending Measuring GDP Through Production Measuring GDP Through Income Saving and Investment Transactions with

### CHAPTER 7 Measuring Domestic Output, National Income, and the Price Level

CHAPTER 7 Measuring Domestic Output, National Income, and the Price Level Topic Question numbers 1. GDP concept 1-15 2. C, I, G, and X n components 16-43 3. Investment and the capital stock 44-57 4. GDP

### Pre-Test Chapter 6 ed17 2

Pre-Test Chapter 6 ed17 2 Multiple Choice Questions 1. (Last Word) The U.S. government agency responsible for compiling the national income accounts is the: A. Census Bureau. B. Bureau of Labor Statistics

### National Income Accounting

Chapter 2 The Measurement and Structure of the Canadian Economy Economics 282 University of Alberta National Income Accounting The national income accounts is an accounting framework used in measuring

### Introduction to Macroeconomics

Introduction to Macroeconomics Macroeconomics the study of the economy as a whole We measure performance to track the development of the economy Why Measure Performance Helps the government develop tax

### Name: Date: 3. Variables that a model tries to explain are called: A. endogenous. B. exogenous. C. market clearing. D. fixed.

Name: Date: 1 A measure of how fast prices are rising is called the: A growth rate of real GDP B inflation rate C unemployment rate D market-clearing rate 2 Compared with a recession, real GDP during a

### 31. Gross Domestic Product equals a. Y = C + I G + NX. b. Y = C I + G + NX. c. Y = C + I + G + NX.

GDP Review Questions 13. Gross Domestic Product measures the a. quantity of the goods and services produced in a given year, listed item by item, within a country. b. income of the business sector within

### The Circular Flow 1/15/2013. Gross Domestic Product: Expenditure and Income

IN THIS CHAPTER, YOU WILL LEARN: ECON 3010 Intermediate Macroeconomics Chapter 2 The Data of Macroeconomics the meaning and measurement of the most important macroeconomic statistics: gross domestic product

### I. Measuring Output: GDP

University of California-Davis Economics 1B-Intro to Macro Handout 3 TA: Jason Lee Email: jawlee@ucdavis.edu I. Measuring Output: GDP As was mentioned earlier, the ability to estimate the amount of production

### Introduction to Macroeconomics. TOPIC 1: Introduction, definition, measures

TOPIC 1: Introduction, definitions, measures Annaïg Morin CBS - Department of Economics August 2013 What is macroeconomics about? Understanding the behavior of an economy as a whole. studying aggregated

### Macroeconomics: GDP, GDP Deflator, CPI, & Inflation

HOSP 2207 (Economics) Learning Centre Macroeconomics: GDP, GDP Deflator, CPI, & Inflation Macroeconomics is the big picture view of an economy. Microeconomics looks at the market for a specific good, like

### Introduction to Macroeconomics. Sebastian Koch Lauder Business School Summer term 2016

Introduction to Macroeconomics Sebastian Koch Lauder Business School Summer term 2016 Course Outline 2 LBS Intranet CIS Access to course description via LBS Intranet: https://cis.lbs.ac.at/ Check the course

### At the end of Chapter 10, you will be able to answer the following:

1 Objectives for Chapter 10 The Circular Flow Model At the end of Chapter 10, you will be able to answer the following: 1. Explain the basic circular flow model. 2. Define "consumption" and "saving" 3.

### Chapter 13. Aggregate Demand and Aggregate Supply Analysis

Chapter 13. Aggregate Demand and Aggregate Supply Analysis Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics In the short run, real GDP and

### CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY

CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY Learning goals of this chapter: What forces bring persistent and rapid expansion of real GDP? What causes inflation? Why do we have business cycles? How

### A. GDP, Economic Growth, and Business Cycles

ECON 3023 Hany Fahmy FAll, 2009 Lecture Note: Introduction and Basic Concepts A. GDP, Economic Growth, and Business Cycles A.1. Gross Domestic Product (GDP) de nition and measurement The Gross Domestic

### Wages Coconuts 200 Fish 100 Consumption Coconuts 200 Fish 100

Chapter 2 Numerical 1 Professor Gilligan Production Coconuts 1000 Fish 500 Gilligan wages Fish 100 Stored coconuts Fertilizer 100 Price 2 coconuts per fish Wages Fish 100 Consumption Fish 100 GDP= Value

### PowerPoint Lecture Notes for Chapter 23: Measuring a Nation s s Income

PowerPoint Lecture Notes for Chapter 23: Measuring a Nation s Income Principles of Economics 5 th edition, by N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich C H A P T E R 23 Measuring a Nation

### Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015

Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015 Name: Solutions Fall 2015 Prof. Dowell Instructions: Write the answers clearly and concisely on these sheets in

### Chapter 2 The Measurement and Structure of the National Economy

Chapter 2 The Measurement and Structure of the National Economy Multiple Choice Questions 1. The three approaches to measuring economic activity are the (a) cost, income, and expenditure approaches. (b)

### Professor Christina Romer. LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016

Economics 2 Spring 2016 Professor Christina Romer Professor David Romer LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016 I. MACROECONOMICS VERSUS MICROECONOMICS II. REAL GDP A. Definition B.

### Practice Problems on NIPA and Key Prices

Practice Problems on NIPA and Key Prices 1- What are the three approaches to measuring economic activity? Why do they give the same answer? The three approaches to national income accounting are the product

### Measuring GDP and Economic Growth

20 Measuring GDP and Economic Growth After studying this chapter you will be able to Define GDP and explain why GDP equals aggregate expenditure and aggregate income Explain how Statistics Canada measures

### GDP: Does It Measure Up? May 2013. Classroom Edition. An informative and accessible economic essay with a classroom application.

PAGE ONE Economics the back story on front page economics NEWSLETTER GDP: Does It Measure Up? May 2013 Classroom Edition An informative and accessible economic essay with a classroom application. Includes

ANSWERS TO END-OF-CHAPTER QUESTIONS 7-1 In what ways are national income statistics useful? National income accounting does for the economy as a whole what private accounting does for businesses. Firms

### Chapter 12: Gross Domestic Product and Growth Section 1

Chapter 12: Gross Domestic Product and Growth Section 1 Key Terms national income accounting: a system economists use to collect and organize macroeconomic statistics on production, income, investment,

### Lesson 3 - National Income Accounting

Lesson 3 - National Income Accounting Acknowledgement: Ed Sexton and Kerry Webb were the primary authors of the material contained in this lesson. Section 1 - National Income Accounting History of National

### INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS

INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In May 2009, Ford Motor Company's sales

### Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.

### Lecture 1: Gross Domestic Product

Lecture 1: Gross Domestic Product August 28, 2014 Prof. Wyatt Brooks MEASURING A NATION S INCOME 0 Structure of the Course First Part of the Class: The macroeconomy in the long run Why are countries rich

### Macroeconomia Capitolo 7. Seguire l andamento della macroeconomia. What you will learn in this chapter:

Macroeconomia Capitolo 7 Seguire l andamento della macroeconomia PowerPoint Slides by Can Erbil 2006 Worth Publishers, all rights reserved What you will learn in this chapter: How economists use aggregate

### THE ECONOMY AT FULL EMPLOYMENT: THE CLASSICAL MODEL*

Chapter 8 THE ECONOMY AT FULL EMPLOYMENT: THE CLASSICAL MODEL* The Classical Model: A Preview Topic: Real Variables 1) Real variables A) are those that determine the cost of living. B) are those that determine

### Chapter 15: Spending, Income and GDP

Chapter 15: Spending, Income and GDP By the end of this chapter, you will be able to: Define GDP Calculate GDP by: adding up value added of production. adding up expenditure. adding up income. Distinguish

### GDP Measuring Output and Income Part II. Alternative Measures Real World Approximations. Reading: RJB for lecture 5

GDP Measuring Output and Income Part II Alternative Measures Real World Approximations Reading: RJB for lecture 5 GDP: Statistical Approximations The Bureau of Economic Analysis (BEA) provides both annual

### 4. In the G of the GDP formula why do we not count Welfare and Social Security payments?

DUE DATE: NAME: ECONOMIC HEALTH INDICATORS: GDP AND CPI WORKSHEET CHAPTER 11 USE THE ATTACHED NOTES OR THE POWERPOINTS TO ANSWER THE FOLLOWING QUESTIONS.!!!KEEP THE ATTACHED NOTES. DO NOT TURN IN THE NOTES!!!!

### 2. Measuring the Macroeconomy

Intermediate Macroeconomics 2. Measuring the Macroeconomy Contents 1. Measuring Total Output A. Measurement B. Omissions from GDP 2. How to Measure GDP A. Expenditure Approach 1. Consumption 2. Investment

### On March 11, 2010, President Barack

U.S. Department of Commerce International Trade Administration Introduction Exports Support American Jobs Updated measure will quantify progress as global economy recovers. On March 11, 21, President Barack

### Comparing Levels of Development

2 Comparing Levels of Development Countries are unequally endowed with natural capital. For example, some benefit from fertile agricultural soils, while others have to put a lot of effort into artificial

### Chapter 5 Macroeconomic Measurement: The Current Approach Macroeconomics In Context (Goodwin, et al.)

Chapter 5 Macroeconomic Measurement: The Current Approach Macroeconomics In Context (Goodwin, et al.) Chapter Overview In this chapter, you will be introduced to a fairly standard examination of the National

### Preparation course MSc Business & Econonomics- Macroeconomics: Introduction & Concepts

Preparation course MSc Business & Econonomics- Macroeconomics: Introduction & Concepts Tom-Reiel Heggedal Economics Department 2014 TRH (Institute) Intro&Concepts 2014 1 / 20 General Information Me: Tom-Reiel

### Macroeconomics Machine-graded Assessment Items Module: Macroeconomic Measures of Performance

Macroeconomics Machine-graded Assessment Items Module: Macroeconomic Measures of Performance Machine-graded assessment question pools are provided for your reference and are organized by learning outcome.

### Economics 152 Solution to Sample Midterm 1

Economics 152 Solution to Sample Midterm 1 N. Das PART 1 (81 POINTS):Answer the following 27 multiple choice questions on the scan sheet. Each question is worth 3 points). 1. Gross domestic product (GDP)

### 2 Macroeconomics LESSON 2

2 Macroeconomics LESSON 2 Macroeconomic Goals and GDP Introduction and Description The goals of U.S. macroeconomic policy makers are captured in two laws: the Employment Act of 1946 and the Full Employment

### National Income Accounting

: A set of rules and definitions for measuring economic activity in the aggregate economy (The economy as a whole.) As we noted earlier, the main measure of aggregate economic activity are GDP and GNP

### Measuring the Wealth of Nations

Measuring the Wealth of Nations Chapter 24 LEARNING OBJECTIVES LO 24.1 LO 24.2 LO 24.3 LO 24.4 LO 24.5 LO 24.6 Justify the importance of using the market value of final goods and services to calculate

### ECON 1010 Principles of Macroeconomics Exam #2. Section A: Multiple Choice Questions. (30 points; 2 pts each)

ECON 1010 Principles of Macroeconomics Exam #2 Section A: Multiple Choice Questions. (30 points; 2 pts each) #1. If the price level in the economy and the nominal wages both doubled, then real wages would

### Macroeconomics, 10e, Global Edition (Parkin) Chapter 24 Finance, Saving, and Investment. 1 Financial Institutions and Financial Markets

Macroeconomics, 10e, Global Edition (Parkin) Chapter 24 Finance, Saving, and Investment 1 Financial Institutions and Financial Markets 1) The term "capital," as used in macroeconomics, refers to A) the

### Week 4 Tutorial Question Solutions (Ch2 & 3)

Chapter 2: Q1: Macroeconomics P.52 Numerical Problems #3 part (a) Q2: Macroeconomics P.52 Numerical Problems #5 Chapter 3: Q3: Macroeconomics P.101 Numerical Problems #5 Q4: Macroeconomics P102 Analytical

### Lecture 3: National Income Accounting Reference - Chapter 5. 3) The Income Approach

Lecture 3: National Income Accounting Reference - Chapter 5 3) The Income Approach The income approach defines GDP in terms of the income derived or created from producing final goods and services. Net

### A HOW-TO GUIDE: UNDERSTANDING AND MEASURING INFLATION

A HOW-TO GUIDE: UNDERSTANDING AND MEASURING INFLATION By Jim Stanford Canadian Centre for Policy Alternatives, 2008 Non-commercial use and reproduction, with appropriate citation, is authorized. This guide

### [03.03] Guidelines for the User Cost Method to calculate rents for owner occupied housing. International Comparison Program

International Comparison Program [03.03] Guidelines for the User Cost Method to calculate rents for owner occupied housing Global Office 3 rd Technical Advisory Group Meeting June 10-11, 2010 Paris, France

### Chapter 12. Aggregate Expenditure and Output in the Short Run

Chapter 12. Aggregate Expenditure and Output in the Short Run Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Aggregate Expenditure (AE)

### 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts

Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Key Concepts Aggregate Supply The aggregate production function shows that the quantity of real GDP (Y ) supplied depends on the quantity of labor (L ),

### GDP and Fiscal Policy Monopoly

GDP and Fiscal Policy Monopoly Overview In this lesson, students will gain an understanding of the economic measure of gross domestic product (GDP) and fiscal policy by playing the board game Monopoly

### [ 04 ] The SNA as a System. Paul McCarthy

[ 04 ] The SNA as a System Paul McCarthy National Accounts Workshop Washington - DC, October 25-26, 2010 System of National Accounts GDP is the bottom line but it is simply a summary measure The System

### Macroeconomics. 2.1 Economic Activity

Macroeconomics McGee textbook Pages 249-264 Pages267-271 Pages 299-303 Readings 2 Online resources http://www.dineshbakshi.com/ib-economics www.econclassroom.com Khan Academy 3 Vocab 4 Learning Objectives

### Econ 202 Final Exam. Douglas, Spring 2006 PLEDGE: I have neither given nor received unauthorized help on this exam.

, Spring 2006 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Final Exam 1. When the government spends more, the initial effect is that a. aggregate

### Multiple Choice Identify the choice that best completes the statement or answers the question.

Unit 2 review Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Which of the following is false about the circular-flow diagram? A. Households are the primary

### Chapter: Practice Exam for Macro Indicators. Instruction: Name: Date: Multiple Choice

Chapter: Practice Exam for Macro Indicators Instruction: Name: Date: Multiple Choice 1. GDP does not include A) vegetables grown and consumed by a nonfarm family. B) the purchase of a new Porsche. C) the

### A HOW-TO GUIDE: FINDING AND INTERPRETING GDP STATISTICS

A HOW-TO GUIDE: FINDING AND INTERPRETING GDP STATISTICS By Jim Stanford Canadian Centre for Policy Alternatives, 2008 Non-commercial use and reproduction, with appropriate citation, is authorized. This

### What is gross domestic product? A lesson

What is gross domestic product? A lesson Lesson by Chris Cannon, AP macroeconomics teacher, Sandy Creek High School, Tyrone, Georgia Lesson Description This lesson introduces students to the basic concepts