Unit IV: Macroeconomics Policies pp Chapter 13 Economic Performance Gross Domestic Product aka: GDP The dollar amount of all final goods and services produced in a single year Within a nations borders. A major indicator for economists and governments of how their economies are doing. 2 National income accounting a system of statistics and accounts that keeps track of Production Saving Consumption Investment US: the National Income and Products Accounts (NIPA) are kept by the US Bureau of Economic Analysis (BEA) Part of the US Department of Commerce 3 Intermediate products products used to make other products already counted in GDP Not counted in GDP Tires purchased with a new car Only value of car is counted Flour used by a bakery to make bread Only value of bread is counted 4 Secondhand sales merchandising used goods Not counted in GDP Personal sales at home/yard sales Flea markets Used car Any sale of a house after initial purchase Used clothes Thrift shops Etc. 5 Nonmarket transactions do not happen in a market. Not counted in GDP Neighbor baby sitter Lawn mowing homemaking 6 Underground economy aka: black market Not reported in GDP Selling stolen goods Smuggling Illegal gambling Prostitution Illegal drugs counterfeiting 7 Gross National Product the dollar amount of all final goods and services and structures produced in one year Labor and property supplied by the countrys residents. Includes GDP Also includes imports Another important measure of economic productivity. 8 Net National Product GNP minus depreciation subtracts capital equipment that is over 1 year old Another economic measure 9 National income income that is left after all taxes are subtracted from NNP Excise tax Property tax Licensing fees Customs duties General sales tax Except corporate profit tax Another economic measure 10 Personal income Another economic measure. total amount of income going to consumers Before individual income taxes are subtracted. Adjustments include: Income that does not go to the consumer Corporate income taxes SSI (FICA) contributions Transfer payments are added in Unemployment insurance SSI Medicaid Other public assistance 11 Disposable personal income aka DI Total income the consumer sector has at its disposal AFTER income taxes amount people have available to spend 12 Household all the persons who occupy (reside) in a living quarters: House Apartment Etc. Head Family Lodgers Live-in employees 13 Unrelated individual a person who lives alone even though he/she may have family living elsewhere. 14 Family a group of two or more persons living together related by blood, marriage, adoption 15 C formula symbol for the consumer sector of the economy Income of Households Family Unrelated individuals 16 Output-expenditure model Shows the aggregate demand by the Consumer sector Investment/business sector Government sector Foreign sector The formula: GDP = C + I + G + (X-M) 17 Net export of goods and services refers to the difference between the US exports and imports. Note: This also helps determine balance of trade 18 Section 2 : Inflation a rise in the general price level Note: a weakening of the buying power of a currency. Inflation must be considered when measuring the economy because it distorts the results (does not give an accurate measure) 19 Price index statistical series that can be used to measure changes in prices over time. Helps exclude inflation 20 Base year the year that all other years will be compared to Price index will use a base year to measure progress or decline in later years. 21 Market basket representative selection of commonly purchased goods and services Note: Automobile Tires Shoes Haircuts Legal advice Movie tickets Meat Milk Bread Carrots Lettuce Etc. 22 Consumer Price Index reports on price changes for about 80,000 items in 364 categories 85 geographically distributed areas of the US Compared to base year of Producer Price Index price changes paid by domestic businesses/industries for their inputs. 24 Implicit GDP price deflator An index of average levels of prices for all goods and services in the economy Computed quarterly Base year of 1996 Covers thousands of items Good long-run indicator 25 Current GDP this years GDP Real GDP (GDP in constant dollars) Current GDP minus inflation Formula: Real GDP = GDP in current dollars Implicit GDP price deflator x Assessments: Section 1, Checking for Understanding 1 GDP the dollar amount of all final goods and services produced within a countrys national borders In a year GNP is the dollar value of all final goods, services, and structures produced within national boundaries, produced with labor and property supplied by a countrys residents. In a year 27 Assessments: Section 2, Checking for Understanding 1 No, if adjustments are made for population growth, the rates would be the same. 28 3 Representative of purchases 29 4 Consumer price index Producer price index Implicit GDP price deflator 30 5 Current GDP is the GDP not adjusted for inflation When the distortions of inflation are removed, it is called real GDP 31 6 Image, p. 342 Question Quantity multiplied by price per unit 32 6 Image, p. 343 Question Illegal activities Gambling Smuggling Prostitution Some legal activities not reported to avoid taxes. 33 6 Image, p. 345 Question GDP does not count Payments US citizens receive from outside the country GDP does count Payments made to a foreign-owned resource employed in the US 34 I 346 formula symbol for the investment/business sector of the economy Proprietorships Partnerships Corporations They are the producers 35 G 347 formula symbol for government sector of the economy All levels Federal State Local Collected tax revenues are counted as its income 36 X-M 348 formula symbol for the foreign sector of the economy 37 6 Image, p. 347 Question Personal consumption expenditures Government purchases of goods and services Investment expenditures 38 12 Image, p. 351 Question 351 inflation has changed the price per unit of each item 39 12 Image, p. 352 Question Subtract the price of the market basket for the base year from the price of the new market basket. Divide the difference by the market basket price for the base period The percentage is the change of the new market basket in relation to the base-period market basket. 40 12 Image, p. 353 Questions 1 From 1975 to The 1990s Because from 1995 and on, growth consistently increased 41 12 Image, p. 354 Question Convert current dollar amounts to real dollars by Dividing the current dollar amount by the implicit GDP price deflator for that period Multiply that number by