Chapter 11 - Measuring Macroeconomic Activity.ppt

Chapter 11
Measuring Macroeconomic
Activity

Measuring Gross Domestic Product
(GDP)
 The comprehensive measure of the market
value of all currently produced final goods and
services within a country in a given period of
time by domestic and foreign supplied
resources.
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
2

The Circular Flow of Economic
Activity
3
Foreign Sector
Domestic Market for currently
Produced goods and services
Government
Sector
Financial Markets
Resource Markets
Firm Sector
Household Sector
X
M
Borrowing
G
Revenue
Expenses
Income,
Wages,
Rent,
Interest,
Profit
C
I
TB
TP
Borrowing
Borrowing
S

National Income Accounting
System
 A system of accounts
developed for each
country, based on
the circular flow,
whose purpose is to
measure the level of
economic activity in
that country.
 The U.S. national
income accounting
system is operated
by the Bureau of
Economic Analysis
(BEA) in the
U.S.Department of
Commerce.
4

Final vs. Intermediate Goods and
Services
 Final goods and
services are goods
and services that are
sold to their end-
users.
 Intermediate goods
and services goods
and services that are
used in the
production of other
goods and services.
5

Real vs. Nominal GDP
 Nominal GDP is the
value of currently
produced final goods
and services
measured in current
year prices.
 Real GDP is the
value of currently
produced final goods
and services
measured in
constant prices, or
nominal GDP
adjusted for price
level changes.
6

Nominal and Real GDP, 2000 &
2001
VARIABLE 2000 2001
Nominal GDP $9,817.0 billion $10,128.0 billion
Percent Change 3.17
Real GDP $9,817.0 billion $9,890.7 billion
Percent Change 0.76
GDP Deflator (price
changes)
100 102.40
Percent Change 2.40
7

Nominal vs. Real GDP, 1985-
present
8

US Real GDP and Recessions
9

Expenditure or Output Approach to
Measuring GDP
 Measuring overall economic activity by adding
the expenditure on the output produced in the
economy.
GDP = C + I + G + (X – M)
10

Personal Consumption
Expenditures (C)
 The total amount of spending by consumers on
durable goods, nondurable goods, and
services in a given period of time.
11

Real Personal Consumption
Expenditures, 1985 - present
12

Gross Private Domestic Investment
(I)
 The total amount of spending on nonresidential
structures, equipment, and software;
residential structures; and business inventories
in a given period of time.
13

Real Gross Private Domestic
Product, 1985 - present
14

Government Consumption Expenditures and
Gross Investment (G)
 The total amount of spending by federal, state,
and local governments on consumption outlays
for goods and services and for depreciation
charges for existing structures and equipment
and on investment capital outlays for newly
acquired structures and equipment in a given
period of time.
15

Real Government Consumption Expenditures
and Gross Investment, 1985 - present
16

Net Export Spending (X – M)
 The total amount of spending on exports minus
the total amount of spending on imports in a
given period of time.
17

Real Net Export Spending, 1985 -
present
18

Gross Domestic Product and Its
Components, 2007
COMPONENT
VALUE IN BILLIONS OF
DOLLARS (% OF GDP)
GROSS DOMESTIC PRODUCT
(GDP)
13,807.5
PERSONAL CONSUMPTION
EXPENDITURES (C )
9,710.2 (70.3)
GROSS PRIVATE DOMESTIC
INVESTMENT (I )
2,130.4 (15.5)
GOVERNMENT CONSUMPTION
EXPENDITURES AND
GROSS INVESTMENT (G)
2,674.8 (19.4)
NET EXPORTS OF GOODS AND
SERVICES (F )
707.8 (5.1)
19

Earnings or Income Approach to
Measuring GDP
 Measuring overall economic activity by adding
the earnings or income generated by selling
the output produced in the economy.
GDP = compensation of employees + proprietor’s
income + rental income + corporate profits +
net interest
20

National Income
 Compensation of employees: the wages and salaries and the
fringe benefits paid by employers to employees.
 Proprietors’ income: the income of unincorporated businesses,
such as medical practices, law firms, small farms, and retail
stores.
 Rental income : the income households receive from the rental of
their property.
 Corporate profits: the excess of revenues over costs for the
incorporated business sector of the economy.
 Net interest: the interest private businesses pay to households for
lending money to the firms minus the interest businesses receive
plus interest earned from foreigners.
21

National Income
COMPONENT
VALUE IN BILLIONS OF DOLLARS
(% OF NATIONAL INCOME)
GROSS DOMESTIC PRODUCT 13,807.5
Less: Depreciation expenditures 1,618.0
Less: Statistical discrepancy 81.4
EQUALS: NATIONAL INCOME 12,270.9
Compensation of employees 7,812.3 (63.6)
Proprietor’s income 1,056.2 (8.6)
Rental income 40.0 (0.3)
Corporate profits 1,642.4 (13.4)
Net interest 664.4 (5.4)
22

National Income, continued
COMPONENT
VALUE IN BILLIONS OF DOLLARS
(% OF NATIONAL INCOME)
Less: Income earned, but not received 4,321.0
Plus: Income received, but not earned 3,713.3
EQUALS: PERSONAL INCOME 11,663.2
Less: Personal taxes 1,492.8
EQUALS: DISPOSABLE INCOME 10,170.5
Personal consumption expenditure
($9,710.2)
plus other outlays ($402.9)
10,113.1
Personal saving 57.4
23

Other Important Macroeconomic
Variables
 Price level measures
– GDP deflator
– Consumer price index
– Wholesale price index
 Employment and unemployment
24

GDP Deflator
 The GDP deflator compares the price of each
year’s output of real goods and services to the
price of that same output in a base year. It is a
broad measure of price changes because it
reflects the changes in consumption patterns
over time included in GDP.
25

Consumer Price Index (CPI)
 A measure of the combined price consumers
pay for a fixed market basket of goods and
services in a given period relative to the
combined price of an identical basket of goods
and services in a base period.
26

Producer Price Index (PPI)
 A measure of the prices firms pay for crude
materials; intermediate materials, supplies, and
components; and finished goods.
27

Measures of Employment and
Unemployment
 Labor force
 Number employed
 Number unemployed
 Unemployment rate
 Discouraged workers
28

Labor Force
 The civilian labor force is composed of those
individuals 16 years of age and over who are
working in a job (employed) or who are actively
seeking employment (unemployed).
29

Employed
 Persons 16 years of age and over who, in the
survey week, did any work as an employee,
worked in their own business, profession, or
farm; or worked without pay at least 15 hours
in a family business or farm.
30

Unemployed
 Persons 16 years of age and over who do not
currently have a job, but who are actively
seeking employment.
31

Unemployment Rate
 Proportion of the labor force that is
unemployed.
UR = (number of unemployed ÷ labor force) x 100
32

Discouraged Workers
 Persons 16 years of age and over who are not
currently seeking work because they believe
that jobs in their area or line of work are
unavailable or that they would not qualify for
existing job openings.
33

Natural Rate of Unemployment
 The minimum level of unemployment that can
be achieved with current institutions without
causing inflation to accelerate
34

Major Macroeconomic Policy
Issues
 What factors influence the spending behavior of the different
sectors of the economy?
 How do behavior changes in these sectors influence the level of
output and income in the economy?
 Can Policy Makers Maintain Stable Prices, Full Employment, and
Adequate Economic Growth over Time?
 How Do Fiscal, Monetary, and Balance of Payments Policies
Influence the Economy?
 What Impact Do These Macro Changes Have on Different Firms
and Industries?
35

Chapter 11 - Measuring Macroeconomic Activity.ppt

More Related Content

Similar to Chapter 11 - Measuring Macroeconomic Activity.ppt (20)

Recently uploaded (20)

Chapter 11 - Measuring Macroeconomic Activity.ppt