the branch of economic theory dealing with the economy as a whole and decision making by governments
TRANSCRIPT
The branch of economic theory dealing with the economy as a whole and decision making by governments.
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 Income remaining for people to
spend or save after all taxes have been paid
Ch 13- Section 2- Correcting Statistics for Inflation
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 IndexItem A Item B Item C
Year 1 112.50 225.00 110.00Year 2 121.50 243.00 128.00Change in Index Points
9.00 18.00 18.00
Percent Change
9.00/112.50*100=8
18.00/225.00*100=8
18.00/110.00*100=16.4
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
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 and Supply
Aggregates
The summing up of all the individual parts of the economy
Averages
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 and Supply Curve
As aggregate demand increases, aggregate supply decreases, and inflation increases
Ch 13- Section 4: Business Fluctuations Business Fluctuations- Ups and
downs in the economy
The Business Cycle
Peak/boom Contraction Recession Trough Expansion/ Recovery
NY1 | 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 11th 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; changes in stock prices, etc.
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
Lagging Indicators
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
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