# MACROECONOMIC VARIABLES Measurement and definition. CHAPTER 2 The Data of Macroeconomics

Save this PDF as:

Size: px
Start display at page:

Download "MACROECONOMIC VARIABLES Measurement and definition. CHAPTER 2 The Data of Macroeconomics"

## Transcription

1 MACROECONOMIC VARIABLES Measurement and definition. 0

2 What this course is about: 1

3 2

4 WHAT IS THIS VARIABLES (GDP): part I WHAT DETERMINES THE BLUE LINE: part II WHAT DETERMINES THE RED LINE: part III HOW POLICY CAN AFFECT THE LINE: part IV 3

5 In this chapter, you will learn: The meaning and measurement of the most important macroeconomic variables: 1) Gross Domestic Product (GDP) 2) The Consumer Price Index (CPI) 3) The unemployment rate 4

6 1) GDP 5

7 Gross Domestic Product: Expenditure and Income Two definitions: Total expenditure on domestically-produced final goods and services. Total income earned by domestically-located factors of production. Expenditure equals income because every dollar spent by a buyer becomes income to to the seller. 6

8 The Circular Flow Income (\$) Labor Households Firms Goods Expenditure (\$) 7

9 Value added Value added: The value of output minus the value of the intermediate goods used to produce that output 8

10 NOW YOU TRY: Identifying value-added A farmer grows a bushel of wheat and sells it to a miller for \$1.00. The miller turns the wheat into flour and sells it to a baker for \$3.00. The baker uses the flour to make a loaf of bread and sells it to an engineer for \$6.00. The engineer eats the bread. Compute value added at each stage of production and GDP

11 So now we know why the word "final" GDP = value of final goods produced = sum of value added at all stages of production. The value of the final goods already includes the value of the intermediate goods, so including intermediate and final goods in GDP would be double-counting. 10

12 The expenditure components of GDP consumption, C investment, I government spending, G net exports, NX An important identity: Y = C + I + G + NX value of total output aggregate expenditure 11

13 Let s look at them one-by-one a) Consumption b) Investment c) Government expenditure d) Net exports Those are the aggregate demand components. 12

14 a) Consumption (C) definition: The value of all goods and services bought by households. Includes: durable goods last a long time e.g., cars, home appliances nondurable goods last a short time e.g., food, clothing services work done for consumers e.g., dry cleaning, air travel 13

15 U.S. consumption, 2009 Consumption Durables Nondurables Services \$ billions \$ 10,001 1,027 2,204 6,771 % of GDP 70.8%

16 b) Investment (I) Spending on goods bought for future use (i.e., capital goods) Includes: Business fixed investment Spending on plant and equipment Residential fixed investment Spending by consumers and landlords on housing units Inventory investment The change in the value of all firms inventories 15

17 U.S. Investment, 2009 Investment Business fixed Residential Inventory \$ billions \$1,589 1, % of GDP 11.3%

18 Investment vs. Capital Note: Investment is spending on new capital. Example (assumes no depreciation): 1/1/2013: economy has \$500b worth of capital during 2013: investment = \$60b 1/1/2014: economy will have \$560b worth of capital 17

19 Stocks vs. Flows A stock is a quantity measured at a point in time. E.g., The U.S. capital stock was \$26 trillion on January 1, Flow Stock A flow is a quantity measured per unit of time. E.g., U.S. investment was \$2.5 trillion during

20 Stocks vs. Flows - examples stock a person s wealth # of people with college degrees the govt debt flow a person s annual saving # of new college graduates this year the govt budget deficit 19

21 NOW YOU TRY: Stock or Flow? the balance on your credit card statement how much you study economics outside of class the size of your compact disc collection the inflation rate the unemployment rate

22 c) Government spending (G) G includes all government spending on goods and services. G excludes transfer payments (e.g., unemployment insurance payments), because they do not represent spending on goods and services. 21

23 Let us be clear: a real-world example «Italy s public spending in 2012 was 801,08 billions of euro, because that s the amount of money that the public administration has paid in that year. So that s Italy s government spending, that is, the public component of aggregate demand» WRONG. Or at least, it's right at the pub (sorry to say, also in Tv talk show), but not here. 22

24 Government spending (= the amount of goods and services purchased by the government) is, instead, 801,08 billions... Minus Social spending (311,41 billions) Interest payments (86,71 billions) Trasfers to firms (18.59 billions) Because that money does not buy anything 23

25 So G = 384,37 billions The remaining part (transfers to families and firms, and interest payments) are surely public resources (they need to be financed!) but do not buy anything, so they do not directly increase aggregate demand. SPENDING BY THE GOVERNMENT = G + Tr + interest payments 24

26 U.S. Government Spending, 2009 Govt spending - Federal Non-defense Defense - State & local \$ billions \$2,915 1, ,775 % of GDP 20.6%

27 d) NET EXPORTS We are trying to figure out where «total production» goes. It can be consumed ( C ) It can be saved and then invested. ( I ) It can be bought by the public sector. ( G ) Or, in an open economy, it can be brought abroad (by foreign private or public sector): we call this component X (Exports). 26

28 To be fair, however, we need to subtract: IM (=imports) : goods and services bought by domestic residents, but produced abroad (and therefore not part of domestic production). Net exports : export - import Or, more quickly: NX = X - IM 27

29 U.S. Net Exports, 2009 \$ billions % of GDP Net exports of g & s \$ % Exports 1, % Goods 1, % Services % Imports 1, % Goods 1, % Services % 28

30 WAIT A MINUTE...: An expenditure-output puzzle? Suppose a firm: produces \$10 million worth of final goods only sells \$9 million worth Does this violate the expenditure = output identity?

31 Solving the puzzle... Unsold output goes into inventory, and is counted as inventory investment whether or not the inventory buildup was intentional. In effect, we are assuming that firms purchase their unsold output. Question: when you see inventory going down (negative component) is it a good sign or a bad sign? 30

32 GDP: An important and versatile concept We have now seen that GDP measures: total income total output total expenditure the sum of value-added at all stages in the production of final goods 31

33 GNP vs. GDP Gross National Product (GNP): Total income earned by the nation s factors of production, regardless of where located Gross Domestic Product (GDP): Total income earned by domestically-located factors of production, regardless of nationality GNP GDP = factor payments from abroad minus factor payments to abroad Examples of factor payments: wages, profits, rent, interest & dividends on assets 32

34 NOW YOU TRY: Discussion Question In your country, which would you want to be bigger, GDP or GNP? Why?

35 GNP vs. GDP in select countries, 2009 Country GNP GDP GNP GDP (% of GDP) Bangladesh \$99,391 \$89, % Japan \$5,198,865 \$5,067, United States \$14,345,303 \$14,256, China \$4,937,980 \$4,984, Canada \$1,323,476 \$1,336, Mexico \$860,849 \$874, Greece \$316,267 \$329, Nigeria \$155,303 \$168, Ireland \$183,174 \$227, GNP and GDP in millions of current U.S. dollars

36 Real vs. nominal GDP GDP is the value of all final goods and services produced. nominal GDP measures these values using current prices. real GDP measure these values using the prices of a base year. 35

37 NOW YOU TRY: Real & Nominal GDP P Q P Q P Q good A \$ \$31 1,000 \$36 1,050 good B \$ \$ \$ Compute nominal GDP in each year. Compute real GDP in each year using 2006 as the base year.

38 NOW YOU TRY: Answers nominal GDP multiply Ps & Qs from same year 2006: \$46,200 = \$ \$ : \$51, : \$58,300 real GDP multiply each year s Qs by 2006 Ps 2006: \$46, : \$50, : \$52,000 = \$ \$

39 Real GDP controls for inflation Changes in nominal GDP can be due to: changes in prices. changes in quantities of output produced. Changes in real GDP can only be due to changes in quantities, because real GDP is constructed using constant base-year prices. 38

40 U.S. Nominal and Real GDP, Real GDP (in 2000 dollars) Nominal GDP

41 GDP Deflator Inflation rate: the percentage increase in the overall level of prices One measure of the price level: GDP deflator Definition: GDP deflator = 100 Nominal GDP Real GDP 40

42 NOW YOU TRY: GDP deflator and inflation rate Nom. GDP Real GDP GDP deflator Inflation rate 2006 \$46,200 \$46,200 n.a ,400 50, ,300 52,000 Use your previous answers to compute the GDP deflator in each year. Use GDP deflator to compute the inflation rate from 2006 to 2007, and from 2007 to 2008.

43 NOW YOU TRY: Answers Nominal GDP Real GDP GDP deflator Inflation rate 2006 \$46,200 \$46, n.a ,400 50, % ,300 52, %

44 Understanding the GDP deflator Example with 3 goods For good i = 1, 2, 3 P it = the market price of good i in month t Q it = the quantity of good i produced in month t NGDP t = Nominal GDP in month t RGDP t = Real GDP in month t 43

45 Understanding the GDP deflator GDP deflator t NGDP = t RGDP t = P Q + P Q + P Q 1t 1t 2t 2t 3t 3t RGDP t Q 1t Q2t Q3t = P + P + P RGDPt RGDPt RGDPt 1t 2t 3t The GDP deflator is a weighted average of prices. The weight on each price reflects that good s relative importance in GDP. Note that the weights change over time. 44

46 Two arithmetic tricks for working with percentage changes 1. For any variables X and Y, percentage change in (X Y ) percentage change in X + percentage change in Y EX: If your hourly wage rises 5% and you work 7% more hours, then your wage income rises approximately 12%. 45

47 Two arithmetic tricks for working with percentage changes 2. percentage change in (X/Y ) percentage change in X percentage change in Y EX: GDP deflator = 100 NGDP/RGDP. If NGDP rises 9% and RGDP rises 4%, then the inflation rate is approximately 5%. 46

48 Chain-Weighted Real GDP Over time, relative prices change, so the base year should be updated periodically. In essence, chain-weighted real GDP updates the base year every year, so it is more accurate than constant-price GDP. Your textbook usually uses constant-price real GDP, because: the two measures are highly correlated. constant-price real GDP is easier to compute. 47

49 2) PRICES/ INFLATION 48

50 Consumer Price Index (CPI) A measure of the overall level of prices Published by statistical agencies (Bureau of Labor Statistics (BLS) in US, by Eurostat in EU) Uses: tracks changes in the typical household s cost of living adjusts many contracts for inflation ( COLAs ) allows comparisons of dollar amounts over time 49

51 How statistical agencies constructs the CPI 1. Survey consumers to determine composition of the typical consumer s basket of goods 2. Every month, collect data on prices of all items in the basket; compute cost of basket 3. CPI in any month equals 100 Cost of basket in that month Cost of basket in base period 50

52 NOW YOU TRY: Compute the CPI Basket: 20 pizzas, 10 compact discs prices: pizza CDs 2002 \$10 \$ \$11 \$ \$12 \$ \$13 \$15 For each year, compute the cost of the basket the CPI (use 2002 as the base year) the inflation rate from the preceding year

53 NOW YOU TRY: Answers to CPI exercise Cost of Inflation basket CPI rate 2002 \$ n.a % % %

54 The composition of the CPI s basket Food and bev. Housing 17.4% 6.2% 5.6% 3.0% Apparel Transportation 3.8% 3.1% 3.5% Medical care Recreation Education 15.1% Communication Other goods and services 42.4%

55 Understanding the CPI Example with 3 goods For good i = 1, 2, 3 C i = the amount of good i in the CPI s basket P it = the price of good i in month t E t = the cost of the CPI basket in month t E b = the cost of the basket in the base period 54

56 Understanding the CPI CPI in month = E t 1t 1 2t 2 3t 3 t E b = P C + P C + P C E b C C C = P + P + P E E E t 2t 3t b b b The CPI is a weighted average of prices. The weight on each price reflects that good s relative importance in the CPI s basket. Note that the weights remain fixed over time. 55

57 Why the CPI may overstate inflation Substitution bias: The CPI uses fixed weights, so it cannot reflect consumers ability to substitute toward goods whose relative prices have fallen. Introduction of new goods: The introduction of new goods makes consumers better off and, in effect, increases the real value of the dollar. But it does not reduce the CPI, because the CPI uses fixed weights. Unmeasured changes in quality: Quality improvements increase the value of the dollar, but are often not fully measured. 56

58 Why CPI and GDP deflator should differ? a) Prices of capital goods: included in GDP deflator (if produced domestically) excluded from CPI b) Prices of imported consumer goods: included in CPI excluded from GDP deflator c) The basket of goods: CPI: fixed GDP deflator: changes every year 57

59 Two measures of inflation in the U.S. CPI Percentage change from 12 months earlier GDP deflator

60 3) EMPLOYMENT 59

61 Categories of the population employed working at a paid job unemployed not employed but looking for a job labor force the amount of labor available for producing goods and services; all employed plus unemployed persons not in the labor force not employed, not looking for work 60

62 Two important labor force concepts unemployment rate percentage of the labor force that is unemployed labor force participation rate the fraction of the adult population that participates in the labor force 61

63 NOW YOU TRY: Computing labor statistics U.S. adult population by group, Oct 2010 Number employed = million Number unemployed = 14.8 million Adult population = million Use the above data to calculate the labor force the number of people not in the labor force the labor force participation rate the unemployment rate

64 NOW YOU TRY: Answers data: E = 139.1, U = 14.8, POP = labor force L = E +U = = not in labor force NILF = POP L = = 84.6 unemployment rate U/L x 100% = (14.8/153.9) x 100% = 9.6% labor force participation rate L/POP x 100% = (153.9/238.5) x 100% = 64.5%

65 NOW YOU TRY: Compute percentage changes in labor statistics Suppose population increases by 1% labor force increases by 3% number of unemployed persons increases by 2% Compute the percentage changes in the labor force participation and unemployment rates.

66 NOW YOU TRY: Answers LFPR = L/POP L increases 3%, POP increases 1%, so LFPR increases 3% 1% = 2% U rate = U/L U increases 2%, L increases 3%, so U-rate increases 2% 3% = 1% Note: the changes in LFPR and U-rate are shown as percent of their initial values, not in percentage points! E.g., if initial value of LFPR is 60.0%, a 2% increase would bring it to 61.2%, because 2% of 60 equals 1.2.

67 The establishment survey The BLS obtains a second measure of employment by surveying businesses, asking how many workers are on their payrolls. Neither measure is perfect, and they occasionally diverge due to: treatment of self-employed persons new firms not counted in establishment survey technical issues involving population inferences from sample data 66

68 Two measures of employment growth Percentage change from 12 months earlier

69 Chapter Summary Gross Domestic Product (GDP) measures both total income and total expenditure on the economy s output of goods & services. Nominal GDP values output at current prices; real GDP values output at constant prices. Changes in output affect both measures, but changes in prices only affect nominal GDP. GDP is the sum of consumption, investment, government purchases, and net exports.

70 Chapter Summary The overall level of prices can be measured by either: the Consumer Price Index (CPI), the price of a fixed basket of goods purchased by the typical consumer, or the GDP deflator, the ratio of nominal to real GDP The unemployment rate is the fraction of the labor force that is not employed.

### 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

### 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

### 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

### 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)

### 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.

### 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.

### ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100)

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He Homework 1 Suggested Answer (Total points: 100) Understanding the growth rate and how to measure it Problem no. 1 on page 35. (10 points)

### 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

### 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

### 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 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

### 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

Chapter 2 The Measurement and Structure of the National Economy Chapter Outline National Income Accounting: The Measurement of Production, Income, and Expenditure Gross Domestic Product Saving and Wealth

### Chapter Outline. Chapter 2. National Income Accounting. National Income Accounting

Chapter 2 The Measurement and Structure of the National Economy Chapter Outline National Income Accounting: The Measurement of Production, Income, and Expenditure Real GDP, Price Indexes, and Inflation

### 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

### 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

### Measuring National Output and National Income

Measuring National Output and National Income 6 C H A P T E R O U T L I N E Gross Domestic Product Final Goods and Services Exclusion of Used Goods and Paper Transactions Exclusion of Output Produced Abroad

### 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

### 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 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

### 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

### 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

### 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

### 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

### Chap 11 & 12. Measuring the Cost of Living THE CONSUMER PRICE INDEX

Chap 11 & 12 Chap 10: Measuring a Nation s Income: GDP, Nominal GDP, Real GDP, and GDP Deflator Next topic: Chap 11: Measuring the Cost of Living: CPI GDP from an whole economy point of view CPI from a

### 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

### National Income Accounting. Courtesy : www. carlprosper4nugs.yolasite.com

National Income Accounting Courtesy : www. Introduction to Economy of Ghana Measuring the Economy - National Income Accounting Structure of the Economy and Sectoral Outlook Economic History of Ghana: preindependence,

### 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

### 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

### 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

### 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

### 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

### Exam 1 Review. Page 1

Exam 1 Review 1. When a firm sells a product out of inventory, GDP: A) increases. B) decreases. C) is not changed. D) increases or decreases, depending on the year the product was produced. 2. An economy's

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

### 1. A glimpse of the real sector: GDP, inflation rate, macroeconomic identities

1. A glimpse of the real sector: GDP, inflation rate, macroeconomic identities 1. Real sector and financial sector Macroeconomics studies the aggregate effects of what people do. Most of what people do

### Chapter 20. The Measurement of National Income

Chapter 20 The Measurement of National Income National Output and Value Added -many production processes involve multiple stages, only some which are done within the same firm -this raises an important

### Measuring the Cost of Living THE CONSUMER PRICE INDEX

6 In this chapter, look for the answers to these questions: What is the Consumer (CPI)? How is it calculated? What s it used for? What are the problems with the CPI? How serious are they? How does the

### 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)

### Name (Please print) Assigned Seat. ECO202: PRINCIPLES OF MACROECONOMICS FIRST MIDTERM EXAM SPRING 2011 Prof. Bill Even FORM 1.

Name (Please print) Assigned Seat ECO202: PRINCIPLES OF MACROECONOMICS FIRST MIDTERM EXAM SPRING 2011 Prof. Bill Even FORM 1 Directions 1. Fill in your scantron with your unique id and form number. Doing

### 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

### 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

### 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

### 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.

### Chapter 24 Measuring Domestic Output and National Income QUESTIONS. 1. In what ways are national income statistics useful? LO1

Chapter 24 Measuring Domestic Output and National Income QUESTIONS 1. In what ways are national income statistics useful? LO1 Answer: National income accounting does for the economy as a whole what private

### Chapter 5: National Income Accounting John Petroff

Chapter 5: National Income Accounting John Petroff INTRODUCTION The purpose of this topic is to study how the gross national product is measuring the economic activity of a nation. The concept is defined

### 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!!!!

### 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

### 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.

### Solutions to Week 3 Tutorial Questions (Ch2)

Chapter 2: Q1: Macroeconomics P.51 Review Questions #1 Q2: Macroeconomics P.51 Review Questions #5 Q3: Macroeconomics P.52 Numerical Problems #5 Q4: Macroeconomics P.52 Numerical Problems #6 Q5: Macroeconomics

### 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

### Chapter 12. National Income Accounting and the Balance of Payments. Slides prepared by Thomas Bishop

Chapter 12 National Income Accounting and the Balance of Payments Slides prepared by Thomas Bishop Preview National income accounts measures of national income measures of value of production measures

### 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

### Gross Domestic Product. Will the Canadian economy weaken through the next year and shrink, or will it remain strong and expand?

Will the Canadian economy weaken through the next year and shrink, or will it remain strong and expand? To assess the state of the economy and to make big decisions about business expansion, firms use

### 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

### 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.

### 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.

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

Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The market demand curve is: A) always horizontal. B) upward sloping. C) negatively sloped.

### Topic 4: Different approaches to GDP

Topic 4: Different approaches to GDP PRINCIPLES OF MACROECONOMICS Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University Three different approaches to measure the GDP

### 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

### Econ 102 Measuring National Income and Prices Solutions

Econ 102 Measuring National Income and Prices Solutions 1. Measurement of National Income and Decomposing GDP This question is designed to see if you understand how Gross Domestic Product (GDP) is measured.

### 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

### 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.

### 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,

### 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

### 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:

### 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

### MEASURING NATIONAL INCOME. Unit 5 Theory and measurement in the macroeconomy

MEASURING NATIONAL INCOME Unit 5 Theory and measurement in the macroeconomy We need information on how much spending, income and output is being created in an economy over a period of time. National income

### 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

### 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

### 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

### VANCOUVER ISLAND UNIVERSITY. ECON212: PRINCIPLES OF MACROECONOMICS, Spring 2013 SAMPLE MIDTERM EXAM. Name (Last, First): ID #: Signature:

Important: Please remember it is a sample exam. Number of questions in each section and structure of questions in section b and c would vary as discussed in class VANCOUVER ISLAND UNIVERSITY ECON212: PRINCIPLES

### 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

### Economic Output. Economic Output. GDP: Definition. GDP: Definition. GDP: Definition. GDP: Definition. Agenda. Gross Domestic Product (GDP)

Economic Output Economic Output Agenda Defining GDP Measuring Real GDP The Expenditure Side The Income Side Economic Output Gross Domestic Product (GDP) The official measure of a country s economic output.

### 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

### EC201 Intermediate Macroeconomics. EC201 Intermediate Macroeconomics Problem Set 1 Solution

EC201 Intermediate Macroeconomics EC201 Intermediate Macroeconomics Problem Set 1 Solution 1) Given the difference between Gross Domestic Product and Gross National Product for a given economy: a) Provide

### 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

### 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

### LECTURE NOTES ON MACROECONOMIC PRINCIPLES

LECTURE NOTES ON MACROECONOMIC PRINCIPLES Peter Ireland Department of Economics Boston College peter.ireland@bc.edu http://www2.bc.edu/peter-ireland/ec132.html Copyright (c) 2013 by Peter Ireland. Redistribution

### 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

### What is included and excluded in GDP? Differentiate between the income and expenditure approach.

What is included and excluded in GDP? Differentiate between the income and expenditure approach. Gross DOMESTIC Product GDP official measure of output Market Value of the final goods and services produced

### 1. GDP includes only sales of good and services to the final pur- Final goods. Newly produced goods

1 Output is normally measured by Gross Domestic Product (GDP), defined as the total market value of all final goods and services produced within an economy in a given period. Output is normally measured

### 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

### 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

### 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

### The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices

Chapter 2: Key Macroeconomics Variables ECON2 (Spring 20) 2 & 4.3.20 (Tutorial ) National income accounting Gross domestic product (GDP): The market value of all final goods and services produced within

### 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Aggregate Supply

Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Aggregate Supply Topic: Aggregate Supply/Aggregate Demand Model 1) The aggregate supply/aggregate demand model is used to help understand all of the following

### 12/03/2012. Currencies and Exchange Rates

The Canadian dollar is one of 100s of different monies. The three big monies: the U.S. dollar, yen, and euro. In February 2007, one Canadian dollar bought 85 U.S. cents. By November 2007, the Canadian

### Review for the Midterm Exam.

Review for the Midterm Exam. 1. Chapter 1 The principles of decision making are: o People face tradeoffs. o The cost of any action is measured in terms of foregone opportunities. o Rational people make

### 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

### 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

### 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

### 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

### 2009 CHAPTER 11 Self Study Questions

CHAPTER 11 Self Study Questions 1) The aggregate supply/aggregate demand model is used to help understand all of the following except A) inflation. B) business cycle fluctuations. C) the aggregate value

### 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

### ECON 101 Exam 2. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

Name: Class: Date: ECON 101 Exam 2 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Al s Aluminum Company sells \$1 million worth of aluminum to Shiny Foil

### April 4th, 2014. Flow C was 9 trillion dollars, Flow G was 2 trillion dollars, Flow I was 3 trillion dollars, Flow (X-M) was -0.7 trillion dollars.

Problem Session I April 4th, 2014 Reference: Parkin, Introduction to economics, 2011 1. The rm that printed your Introduction to economics textbook bought the paper from XYZ Paper Mills. Was this purchase

### 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

### Econ 202 Section 2 Midterm 1

Douglas, Fall 2009 September 29, 2009 A: Special Code 0000 21 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 2 Midterm 1 1. What will happen