Macroeconomic concerns
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The document discusses key concepts related to macroeconomic growth, including: 1. Gross domestic product (GDP) is used to measure aggregate economic activity and output. GDP can be calculated using expenditure, production, and income approaches. 2. Nominal GDP measures total output in current prices, while real GDP accounts for inflation by using constant prices to measure output. 3. Economic growth is measured as the percentage change in real GDP from one period to the next. Periods of growth are called expansions, while declines are called contractions or recessions.
Macroeconomic concerns
- 1. Macroeconomic Concerns Economic Growth Inflation Unemployment Mr. Rey Belen
- 2. Economic Growth O National Income and Product Accounts are an accounting system used to measure of aggregate economic activity. O The measure of aggregate output in the national income accounts its gross domestic product or GDP.
- 3. Gross Domestic Product (GDP) 3 ways to define GDP 1. The value of the final goods and services produced in the economy during a given period 2. The sum of value added in in the economy during a given period 3. The sum of incomes in the economy during a given period.
- 4. Economic Growth: GDP Approaches to measure GDP 1. Expenditure approach, or GDP = C (consumption) + I (investment) + G (government spending) + NX (net exports or exports minus imports) 2. Sectoral(producton) approach, or GDP = Agriculture + Industry + Services 3. Income approach, or GDP = wages + profits + rents + interests payments. The first two are more common in the National Income Accounts (NIA) if the Philippines.
- 5. Economic Growth: GDP Example, in 2003 (in thousands) Expenditure Approach Personal Consumption P2, 750, 853, 000 Government Consumption 488, 740, 000 Gross Domestic Capital Formation 776, 191, 000 Exports 1, 968, 534, 000 Imports 1, 989, 104, 000 Income Approach Compensation of employees 1, 028, 888, 000 Operating Surplus 2, 355, 748, 000 Depreciation 342, 364, 000 Indirect Taxes less subsidies 302, 654, 000 – 6, 960, 000 Production Approach Agriculture 631, 970, 000 Industry 1, 378, 870, 000 Services 2, 305, 562, 000
- 6. Nominal and Real GDP O Nominal GDP is the sum of the quantities of final goods produced times their current price. O Nominal GDP increases overtime because: O The production of most goods increases overtime. O The prices of most goods also increases overtime. O Nominal GDP is also called peso GDP or GDP in current pesos O Real GDP is constructed as the sum of the quantities of final goods times constant (rather than current) prices. O Real GDP is also called GDP in terms of goods, GDP in constant pesos, GDP adjusted for inflation, or GDP in 1985 pesos (which is the benchmark for real GDP in the Philippines.
- 7. Nominal and Real GDP Year Quantity Price of Nominal Real GDP of Motorbike GDP (in 2008 Motorbike s pesos) s 2007 10 P 20, 000 P 200, 000 P 240, 000 2008 12 P 24, 000 P 288, 000 P 288, 000 2009 13 P 26, 000 P 338, 000 P 312, 000 To construct the real GDP, multiply the number of motorbikes in each year by a common price. Suppose we use the price of the motorbikes in 2008 as the common price. This approach give us, in effect, real GDP in 2008 pesos.
- 8. Nominal and Real GDP O Real GDP per capita is the ratio of real GDP to the population of the country. O GDP growth equals: (Yt – Yt-1) Y t-1 GDP refers to the real GDP, where Yt denotes real GDP in year t and Yt-1 denotes the previous year. Periods of positive GDP growth are called expansions Periods of negative GDP growth are called contractions.
- 9. A Typical Business Cycle: Expansion and Contraction O Expansion or Boom O The period in the business cycle from a through up to a peak, during which output and employment rise. O Contraction, Recession or slump O The period in the business cycle from a peak down to a through, during which output and employment fail.