The branch of economic theory dealing with the

The branch of economic theory dealing with the economy as a whole and decision making by governments. MACROECONOMICS

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Ch 13 - Measuring the Economy’s Performance Section 1: National Income Accounting- The measurement of the national economy’s performance, dealing with the overall economy’s output and income

Five Major Stats that Measure the National Economy Gross Domestic Product (GDP) Net Domestic Product (NDP) National Income (NI) Personal Income (PI) Disposable Personal Income (DPI)

GDP Total dollar value of all goods and services produced in a nation in a single year 4 aspects of GDP Measuring Value Measuring Final Goods and Services Computing GDP Weaknesses of GDP

Measuring Value Must measure value of all products and services, not numbers of products and services Ex- one country produced 5 million paperclips; the other produces 3 million computers, which one has a greater GDP?

Measuring Final Goods and Services Must not double count goods; instead measure the final product Ex- are you going to measure the number of bike tires and the number of bikes made if you’re only going to sell the bikes?

Computing GDP Four categories of expenditures are added together to compute GDP Consumer goods and services Investment (Business) goods and services Government goods and services Net Exports

Weaknesses of GDP Does not measure the value of products and services of those who work off the books or buy off the books

NDP Value of a nation’s total output (GDP) minus the total value lost through depreciation on equipment Depreciation- loss of value because of wear and tear to durable and capital goods Ex- cost to replace conveyor belt in factory Cost of recall of automobiles with faulty parts

National Income Total income earned by everyone in the economy

Personal Income Total income that individuals receive before personal taxes are paid Includes transfer payments – welfare, social security, Medicaid, Medicare, disability insurance, etc.

Disposable Personal Income remaining for people to spend or save after all taxes have been paid

Ch 13 - Section 2 - Correcting Statistics for Inflation- Prolonged rise in the general price level of goods and services

The Purchasing Power of Money The real goods and services that money can buy As inflation increases, the purchasing power of money decreases

Measures of Inflation Consumer Price Index (CPI) Producer Price Index (PPI) GDP Price Deflator

Consumer Price Index Measure of the change in price over time of a specific group of goods and services used by the average household The government tracks inflation on a monthly basis using a market basket ( 80, 000 goods and services that the typical household uses)

Consumer Price Index Item A Item B Item C Year 1 112. 50 225. 00 110. 00 Year 2 121. 50 243. 00 128. 00 Change in 9. 00 18. 00 Index Points Percent 9. 00/112. 18. 00/225. 18. 00/110. Change 50*100=8 00*100=1 6. 4

Consumer Price Index 1999 2000 2001 Food 164. 1 167. 8 173. 6 Clothing 131. 3 129. 6 127. 3 Housing 163. 9 169. 6 200. 6 Medical 250. 6 260. 8 272. 8

If you were to construct a market basket of goods and services that students typically consume , what would you select?

Producer Price Index Measure of the change in price over time that US producers charge for their goods and services

GDP Price Deflator Price index that removes the effect of inflation from GDP so that the overall economy in one year can be compared to another year provides the government with the Real GDP a real measure of the value of goods produced in a single year in comparison with years past.

Ch 13 - Section 3: Aggregate Demand Supply Where on this graph would you expect to find the equilibrium (best possible) price for an item?

Aggregates The summing up of all the individual parts of the economy

Aggregate Demand Total quantity of goods and services in the entire economy that all citizens will demand at any single time

Aggregate Supply Real domestic output of producers based on the rise and fall of the price level

Demand Supply Curve As aggregate demand increases, aggregate supply decreases, and inflation increases

Ch 13 - Section 4: Business Fluctuations- Ups and downs in the economy

The Business Cycle Peak/boom Contraction Recession Trough Expansion/ Recovery

NY 1 | 24 Hour Local News | Year In Review | <i>2008 In Review: </i> U. S. Economy Stumbles Through Recession

Ch 13 -Section 5: Causes and Indicators of Business Fluctuations Causes of Business Fluctuations Business Investment Government Activity ( Fiscal and Monetary Policy) External Factors (War; Limited Resources, Natural Disasters) Psychological factors ( Aftermath of September 11 th fear less spending)

http: //www. cnn. com/video/? iref=videoglobal AC 360: Economic Woes Is the stimulus working?

Economic Indicators Statistics that measure variables in the economy 3 Types Leading Indicators Coincident Indicators Lagging Indicators

Leading Indicators Statistics that point to what will happen in the economy Exs- changes in the average number of hours for production workers in manufacturing (If hours are cut, what will happen? If hours are increased what will happen? ) changes in stock prices (If prices go up too much, what will happen? If prices go down? ) Changes in salary

Coincident Indicators Economic indicators that usually change at the same time as changes in overall business activity Serve as evidence of the stage of the cycle you are in Exs- changes in disposable personal income (May depend on a worker’s hours, so therefore it is dependent on a leading indicator)

Lagging Indicators that seem to lag behind changes in overall business activity Effects of changes in business cycle Exs- changes in average length of unemployment; change in the average interest rate charged by banks to their best customers

Create a scenario for a leading indicator, coincident indicator, lagging indicator (i. e. : 3 steps to change the stage of the business cycle)

What innovation do you think has had the greatest impact on the American economy in the last ten years? Why?

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