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Macroeconomic: Dr. Minh Nguyen-Faculty of Economic Chapter 2-Measuring A Nation'S Income

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21 views30 pages

Macroeconomic: Dr. Minh Nguyen-Faculty of Economic Chapter 2-Measuring A Nation'S Income

macroeconomics

Uploaded by

hoacao181
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MACROECONOMIC

CHAPTER 2- MEASURING A NATION’S INCOME

DR. MINH NGUYEN-FACULTY OF ECONOMIC


INTRODUCTION
Gross Domestic Product (GDP)
Measures the total income of everyone
in the economy
Measures the total expenditure on the
economy’s output of goods and
services
For an economy as a whole
Income must equal expenditure
INTRODUCTION
Circular-flow diagram assumptions:
Markets
Goods and services
Factors of production
Households
Spend all of their income
Buy all goods and services
Firms
Pay wages, rent, profit to resource
owners
CIRCULAR FLOW DIAGRAM
MEASUREMENT OF GDP
Gross domestic product (GDP)

Market value of all final goods and services

Produced within a country

In a given period of time

“GDP is the market value…”

Market prices – reflect the value of the goods


MEASUREMENT OF GDP
“… of all…”

All items produced in the economy

And sold legally in markets

Excludes most items

Produced and sold illicitly

Produced and consumed at home


MEASUREMENT OF GDP
“… final…”

Value of intermediate goods is already included in the prices of the

final goods

“… goods and services…”

Tangible goods & intangible services

“… produced…”

Goods and services currently produced


MEASUREMENT OF GDP
“… within a country…”

Goods and services produced domestically

Regardless of the nationality of the producer

“… in a given period of time”

A year or a quarter
THE COMPONENTS OF GDP
Identity: Y = C + I + G + NX

Y = GDP

C = consumption

I = investment

G = government purchases

NX = net exports
THE COMPONENTS OF GDP
Consumption, C

Spending by households on goods and services

Goods: durable goods, nondurable goods

Services: intangibles, spending on education

Exception: purchases of new housing


THE COMPONENTS OF GDP
Investment, I

Purchase of (capital) goods that will be used to produce other goods

and services in the future

Business capital: business structures, equipment, and intellectual

property products

Residential capital: landlord’s apartment building; a homeowner’s

personal residence

Inventory accumulation
THE COMPONENTS OF GDP
Government purchases, G

Government consumption expenditure and gross investment

Spending on goods and services

By local, state, and federal governments

Does not include transfer payments


THE COMPONENTS OF GDP
Net exports, NX = Exports - Imports

Exports

Spending on domestically produced goods by foreigners

Imports

Spending on foreign goods by domestic residents


THE COMPONENTS OF GDP
2015, GDP of the U.S.: almost $18 trillion

GDP per person = $55,822

Consumption = $38,218 per person

68% of GDP

Investment = $9,402 per person

Government purchases = $9,919 per person

Net exports = - $1,657 per person

Americans spent more on foreign goods than foreigners spent on

American goods
THE COMPONENTS OF GDP
REAL VERSUS NOMINAL GDP
Total spending rises from one year to the next

Economy — producing a larger output of goods and services

And/or goods and services are being sold at higher prices

Nominal GDP

Production of goods and services

Valued at current prices


REAL VERSUS NOMINAL GDP
Real GDP

Production of goods and services

Valued at constant prices

Designate one year as base year

Not affected by changes in prices

For the base year

Nominal GDP = Real GDP


REAL VERSUS NOMINAL GDP
REAL VERSUS NOMINAL GDP
The GDP deflator

Ratio of nominal GDP to real GDP times 100

Is 100 for the base year

Measures the current level of prices relative to the level of prices in

the base year

Can be used to take inflation out of nominal GDP (“deflate” nominal

GDP)
REAL VERSUS NOMINAL GDP
Inflation

Economy’s overall price level is rising

Inflation rate

Percentage change in some measure of the price level from one

period to the next


A HALF CENTURY OF REAL GDP
The GDP data

Real GDP grows over time

The real GDP of the U.S. economy in 2015 was more than four times

its 1965 level

Growth – average 3% per year since 1965

Growth is not steady

GDP growth interrupted by recessions


A HALF CENTURY OF REAL GDP
Recession

Two consecutive quarters of falling GDP

Real GDP declines

Lower income

Rising unemployment

Falling profits

Increased bankruptcies
REAL GDP IN THE UNITED STATE
GDP
GDP – “the single best measure of the economic well-being of a

society”

Economy’s total income

Economy’s total expenditure

Larger GDP

Good life, better healthcare

Better educational systems

Measure our ability to obtain many of the inputs into a worthwhile

life
GDP
GDP – not a perfect measure of well-being

Doesn’t include

Leisure

Value of almost all activity that takes place outside

markets

Quality of the environment

Nothing about distribution of income


INTERNATIONAL DIFFERENCE IN
GDP AND QUALITY OF LIFE
Rich countries — higher GDP per person

Better

Life expectancy

Literacy

Internet usage

Poor countries — lower GDP per person

Worse

Life expectancy

Literacy

Internet usage
GDP AND THE QUALITY OF LIFE

Low GDP per person

More infants with low birth weight

Higher rates of infant mortality

Higher rates of maternal mortality

Higher rates of child malnutrition

Less common access to safe drinking water

Fewer school-age children are actually in school


GDP AND THE QUALITY OF LIFE

Low GDP per person

Fewer teachers per student

Fewer televisions

Fewer telephones

Fewer paved roads

Fewer households with electricity


GDP AND THE QUALITY OF LIFE
THANK YOU!

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