Chapter 13: Macroeconomics

1
Chapter 13 Macroeconomics

• Measuring the Economys Performance

2
Section 1 National Income Accounting

• National Income Accounting- overall output and
  income.
• Measuring Gross domestic product- total dollar
  value of all final goods and services.
• 2006 13 trillion
• No double counting by only measuring final goods.
• Only new goods.

3
Computing GDP and Net Domestic Product

• Computing GDP- expenditures in 4 areas
• Consumer sector
• Investment sector
• Government Sector
• Net exports
• Net Domestic Product (NDP)
• GDP depreciation (value lost due to wear and
  tear of capital goods.

4
Measurements of Income (NI)

• NI the sum of
• 1. Wages and Salaries
• 2. Income of self-employed individuals
• 3. Rental income
• 4. Corporate profits
• 5. Interest on savings and investments
• Personal Income (PI)- before taxes are paid.

5
Measurements of Income (NI)

• Transfer payments added- Money from the
  government welfare, social security, food stamps
  etc.
• Disposable Personal Income-Pi - taxes

6
Section 2 Correcting Statistics for Inflation

• Inflation- The prolonged rise in general prices.
• Purchasing power goes down.
• Nations output might not change, GDP takes
  inflation into account.
• Deflation- prolonged decline in prices
• Rarely has happened in modern times.

7
Measures of Inflation

• Consumer Price Index (CPI)- monthly measurement
  of a specific group of goods.
• Market Basket- 80,000 specific goods and
  services.
• Every 10 years the items are updated.
• Choose a base year for comparison.
• Producer Price Index (PPI)- Goods sold to
  producers mining, manufacturing, and farming

8
GDP Price Deflator

• Converting current GDP to real GDP
• Accounts for inflation
• Divide by price deflator (Inflation amount)
• Multiply by 100.
• Real GDP can be compared to any other year.
• Government uses 2000 as its base.

9
Section 3 Aggregate Demand and Supply

• Macro-economics looks supply and demand of all
  goods and services together (Aggregate)
• Aggregate Demand- total of all planned
  expenditures in the entire economy.
• Slopes downward- Inflation less buying power.
  Deflation more buying power.
• Exports rise as prices lower.

10
Aggregate Demand and Supply

• Aggregate Supply- Real domestic output of
  producers based on rise and fall of the price
  level.
• Equilibrium price means no inflation or
  deflation.
• Change in Aggregate demand or supply will change
  the equilibrium price.

11
Section 4 Model of the Business Cycle

• Business fluctuations- ups and downs of the
  economy.
• Business cycle- changes in the level of total
  output, GDP.
• Peak or boom- prosperity
• Contraction- decline
• Recession- six consecutive months of GDP decline

12
Model of the Business Cycle

• Depression- millions out of work economy far
  below capacity.
• Trough- lowest point.
• Expansion or recovery- increase in economic
  activity.
• Great depression- worst example, led to the idea
  war is good for the economy.
• Standard of living did not rise.

13
Section 5 Causes and Indicators of Business
Fluctuations

• Causes
• Innovations
• Business cuts back on capital investment when
  anticipating a downturn.
• Government activities
• Wars
• Psychological effects

14
Economic Indicators

• Statistics to measure variables in the economy.
• Leading indicators
• Coincidental indicators
• Lagging indicators- clues to the duration of a
  business cycle.