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Title: Economic Indicators and Measurements


1
Economic Indicators and Measurements
2
Chapter 12 Economic Indicators and Measurements
  • KEY CONCEPT
  • National income accounting uses statistical
    measures of income, spending, and output to help
    people understand what is happening to a
    countrys economy.
  • WHY THE CONCEPT MATTERS
  • The economic decisions of millions of individuals
    determine the fate of the nations economy.
    Understanding the countrys economy will help you
    make better personal economic decisions.

3
Chapter 12
  • KEY CONCEPTS
  • Microeconomics examines actions of individuals
    and single markets
  • Macroeconomics examines the economy as a whole
  • Macroeconomists use national income accounting
  • statistical measures that track nations income,
    spending, output
  • gross domestic product (GDP) is most important
    investors measure

4
What is GDP?
  • The Components of GDP
  • GDPmarket value of final goods, services
    produced in set time period
  • To be included in GDP, product must fulfill three
    requirements
  • must be final, not intermediate product
  • must be produced during the time period,
    regardless of when sold
  • must be produced within nations borders
  • HOW CAN WE ACCURATELY MEASURE THIS?

5
What is GDP?
  • GDP is calculated using the expenditure model
  • GDP C I G (X IM)
  • C Consumption Spending (households)
  • I Investment Spending (companies)
  • G Government Spending
  • X Exports
  • IM Imports

6
What is GDP?
  • Two Types of GDP
  • When GDP grows, economy creates more jobs and
    business opportunities
  • Nominal GDPprice levels for the year in which
    GDP is measured
  • states GDP in terms of current value of goods and
    services
  • Real GDPGDP adjusted for changes in prices
  • estimate of GDP if prices were to remain constant

7
What GDP Does Not Measure
  • GDP does not measure all output, such as
  • nonmarket activitiesfree services with
    potential economic value
  • underground economyunreported market activities
  • GDP also does not measure quality of life

8
What GDP Does Not Measure
  • GDP and the meaning of life
  • Rich is better
  • Money matters less as you grow richer
  • Money isnt everything

9
Business Cycle
  • Changes in the economy often follow a broad
    pattern
  • Business cycleseries of periods of expanding
    and contracting activity
  • measured by increases or decreases in real GDP
  • has four phases expansion, peak, contraction,
    trough length can vary

10
What Is the Business Cycle?
  • Stage 1 Expansion
  • Expansion is period of economic growthincrease
    in real GDP
  • real GDP grows from a low point, or trough
  • Jobs easier to find unemployment drops
  • More resources needed to keep up with spending
    demand
  • as resources become scarce, their prices rise

11
What Is the Business Cycle?
  • Stage 2 Peak
  • Peak is point at which real GDP is highest
  • As prices rise and resources tighten, businesses
    become less profitable
  • businesses cut back production and real GDP drops

12
What Is the Business Cycle?
  • Stage 3 Contraction
  • During contraction, producers cut back and
    unemployment increases
  • resources become less scarce, so prices tend to
    stabilize or fall

13
What Is the Business Cycle?
  • Stage 4 Trough
  • Trough is point at which real GDP and employment
    stop declining
  • A business cycle is complete when it has gone
    through all four phases

14
Aggregate Demand and Supply
  • Aggregate Demand
  • Aggregate demandtotal amount of products that
    might be bought at every level
  • includes all goods and services, all purchasers
  • Aggregate demand curve is downward sloping
  • vertical axis shows average price of all goods
    and services
  • horizontal axis shows the economys total output

15
Aggregate Demand and Supply
  • Aggregate Supply
  • Aggregate supplysum of all goods and services
    that might be provided at every price level
  • Aggregate supply curve almost horizontal when
    real GDP is low
  • businesses do not raise prices when economy is
    weak
  • Curve slopes upward as prices increase with rise
    in real GDP
  • Curve almost vertical with inflationno rise in
    real GDP

16
Aggregate Demand and Supply
  • Macroeconomic Equilibrium
  • Macroeconomic equilibriumaggregate demand
    equals aggregate supply
  • aggregate demand curve intersects aggregate
    supply curve
  • Figures 12.9, 12.10 P1 is equilibrium price
    level Q1 equilibrium real GDP
  • increase in aggregate demand shifts AD curve to
    right
  • decrease in aggregate supply shifts AS curve to
    left

17
What Is Economic Growth?
  • Population and Economic Growth
  • Population influences economic growth
  • if population grows faster than real GDP, growth
    may mean more workers
  • Real GDP per capitareal GDP divided by total
    population
  • Real GDP per capita is measure of standard of
    living
  • everyone does not actually have that amount does
    not measure quality of life

18
What Determines Economic Growth?
  • KEY CONCEPTS
  • Four factors influence economic growth
  • natural resources, human resources, capital,
    technology and innovation

19
What Determines Economic Growth?
  • Factor 1 Natural Resources
  • Access to natural resources is important
  • arable land, water, forests, oil, mineral
    resources
  • Resources not enough also need free market,
    effective government
  • Nigeria has oil but low GDP per capita,
    widespread poverty
  • Japan has few resources but high GDP per capita
    from industry and trade

20
What Determines Economic Growth?
  • Factor 2 Human Resources
  • Labor inputsize of labor force multiplied by
    length of work week
  • Population growth made up for shorter work week
    since early 1900s
  • More important than size of labor force is its
    level of human capital

21
What Determines Economic Growth?
  • Factor 3 Capital
  • More and better capital goods increase output
  • more and better machines can produce more goods
  • Capital deepeningincrease in the capital to
    labor ratio
  • providing more and better equipment to each
    worker increases production

22
What Determines Economic Growth?
  • Factor 4 Technology and Innovation
  • Technology, innovation make efficient use of
    resources, raise output
  • Innovations can increase economic growth
  • examples reduce time needed to complete task
    improve customer service
  • Information technology has had strong impact on
    economic growth
  • advances in production lower prices, make capital
    deepening cheaper

23
Productivity and Economic Growth
  • KEY CONCEPTS
  • Productivityamount of output produced from a
    set amount of inputs
  • labor productivity amount of goods and services
    produced by one worker in an hour
  • capital productivity amount produced by set
    amount of equipment and materials

24
Productivity and Economic Growth
  • How Is Productivity Measured?
  • For a business, compare amount of capital, work
    hours to total output
  • Multifactor productivityapplies to an industry
    or business sector
  • ratio between economic output and labor and
    capital inputs used
  • Multifactor productivity data compiled for major
    industries, sectors
  • used to estimate productivity of entire economy

25
Productivity and Economic Growth
  • What Contributes to Productivity?
  • Quality of laboreducated, healthy workforce is
    more productive
  • Technological innovationnew technology helps
    increase output
  • Energy costscheaper power lowers cost of using
    tools
  • Financial marketsbanks, stock markets flow funds
    where needed

26
Productivity and Economic Growth
  • How Are Productivity and Growth Related?
  • Economic growth is a measure of a change in
    production
  • Productivity is a measure of efficiency
  • Economy can grow
  • by increasing quantity of resources, labor,
    capital, or technology
  • by increasing productivity

27
Thomas Robert Malthus The Population Problem
  • A Natural Limit to Economic Growth?
  • Malthus called attention to issues of population
    growth, scarcity
  • Said population would grow geometrically, food
    supply arithmetically
  • An Essay on the Principle of Population
    attacked, but unrefuted
  • Malthuss estimates have turned out to be wrong
  • population has grown at slower rate food
    production has risen sharply

28
Reviewing Key Concepts
  • Explain the differences between the terms in each
    of these pairs
  • economic growth and real GDP per capita
  • capital deepening and labor input

29
Poland Economic Freedom and Economic Growth
  • Background
  • Poland was under Communist rule from 1948 to
    1989. In 1990, it held free elections and began
    moving toward a free market economy. Since then,
    Poland has experienced a surge in economic
    growth. In 2004, it joined the European Union.
  • Whats the Issue
  • How successful is Polands economy?
  • Thinking Economically
  • Which economic measurements and indicators are
    evident in documents A and C? Explain what they
    convey about the strengths and weaknesses of
    Polands economy.
  • What factors have driven Polands economic
    growth?
  • Compare documents A and C, written about six
    months apart. What continued economic trends and
    new economic strengths do they describe?
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