Macroeconomics

1
Macroeconomics

• Part I
• Chapters 13-14

2
Measuring the Economys Performance

• National Income Accounting measures the
  economic performance of the United States
• Output or production, and Income

3
Measuring GDP

• Definition the total dollar value of all final
  goods and services produced in the nation during
  a single year.
• Value GDP measures value, not quantity produced
• Final Goods and Services
• No used goods
• Measures final products, not parts.

4
The United States has over 307 million people!
5
Computing GDP

• To calculate the total GDP you must add
• Consumer sector- goods and services purchased.
• Investment sector purchased goods to produce
  other goods
• Government sector all goods and services
  purchased
• Net exports the difference between what the
  nation sells and what it buys from other
  countries.

1
2
3
4
6
Calculating GDP U.S. 2002
68.9
18
16.4
-3.9

• Consumer goods and services

Investment
Gov.
Net Exports
C I G X (I - E)
7
Weaknesses of GDP as a measurement

• While what the government spends is measurable
  and reliable, unpaid work is not calculated in
  the GDP, and extras given to workers such as
  food, fuel, or housing is not a part of the GDP.

btw - not a good idea.
8
Net Domestic Product

• GDP does not take into account the depreciation
  of goods due to wear and tear.
• NDP another method of economic measure that
  does take into consideration the amount of goods
  and services used towards depreciation.

9
Measurements of Income

• National Income total amount earned by
  everyone.
• Wages, salaries, self-employed salaries, rental
  income, corporate profits, and interest on
  savings and investments.
• Personal income money earned before taxes.
• Transfer payments welfare, disability, social
  security, Medicaid, and unemployment
• Disposable Personal Income amount of personal
  income minus taxes.
• Indicator of the overall health of the economy.

10
Math Problems (Barf)

• 1. Country A has a consumer consumption spending
  of 3,456,798,000 in the year 2010, their
  population is 258,000,000, their government
  spends 3 billion, their imports total 27 billion,
  while they export 23 billion. Businesses
  invested 1.4 trillion.
• Calculate country As GDP.
• Calculate the Per Capita GDP for country A.
• Determine the percentage of each contributing
  sector to the GDP.
• If Businesses and the government spent 678
  million replacing items that have depreciated, or
  needed replacing, what is the Net Domestic
  Product of country A?

11
Vocabulary Quiz

1. Income remaining for people to spend or save
   after taxes
2. Loss of value because of wear and tear to durable
   goods and capital goods.
3. Value of the nations total output minus the
   total value lost through depreciation on
   equipment
4. Differences between what the nation sells to
   other countries and what it buys from other
   countries.
5. Total dollar amount of all goods and services
   produced by a nation in a given year.
6. Measurement of the national economys
   performance, dealing with the overall economys
   output and income.
7. Welfare and other supplementary payments that a
   state or the federal government makes to
   individuals.

• a. Net Exports
• b. GDP
• c. Depreciation
• d. National Income Accounting
• e. Net Domestic Product
• f. Transfer Payments
• g. Disposable Income

12
Inflation
http//www.foxnews.com/search-results/m/21961919/o
bama-inflation.htm
For example 100.00 in 1980 had the same buying
power as 262.97 today!

• Purchasing power of money
• Prolonged rise in the general price level of
  goods and services
• Affects the current dollar value of the GDP and
  your ability to buy goods and services.
• Corrected by the Federal Reserve Board
• Feared by Republicans

Check out the CPI inflation calculator online!
13
Economic Philosophy and Inflation
Watch Nightline Inflation Video.

• Democrats

• Republicans

14
Measuring Inflation - CPI

• Consumer Price Index measures the change in
  price over time of a specific group of goods and
  services used by the average household.
• National sample is used of 29,000 families
• Provided by the Bureau of Labor Statistics (BLS)
• Market Basket includes about 80,000 specific
  goods and services under general categories such
  as food, housing, transportation, apparel,
  education, recreation, medical care, and personal
  care.

15
Measuring Income

• Producer Price Index
• Measure of the change in price over time that
  United States producers charge for their goods
  and services
• Change in PPI occurs before a change in the CPI.
• Most are mining, manufacturing, and agricultural
  producers

16
Real GDP
film - Inflation

• 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
• Real GDP GDP that has been adjusted for
  inflation by applying the price deflator
• Nominal GDP current GDP not adjusted for
  inflation.

10,446.21/ 110.66 X 100 ? 9,439.9
Current GDP /Current CPI X 100 Real GDP
17
Aggregate

• Demand
• Total quantity of all goods and services in the
  entire economy demanded by all people.
• Aggregate demand in NOT related to price

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

Aggregate demand curve
18
Equilibrium Price Level

• These two curves will intersect at Price 6,
  and Quantity 20.  In this market, the
  equilibrium price is 6 per unit, and equilibrium
  quantity is 20 units.
• At this price level, market is in equilibrium.
  Quantity supplied is equal to quantity demanded (
  Qs Qd). 
• Market is clear.

19
The Business Cycle
Trough lowest part of the business cycle
Peak or boom economic prosperity.
Contraction when economic activity is
down. Expansion activity slowly increases
Page 361
20
Causes of Economic Fluctuations

• Businesses
• Decisions
• Innovations
• Response to a projected outlook
• Governments
• Fiscal and Monetary policy/new administrations
• External Factors
• War
• Availability of resources
• New resources
• People
• Expectations/ fears

21
Economic Indicators U.S. Department of Commerce
(78)

• Leading
• Statistics that point to what will happen in the
  economy
• The Commerce Department
• 10
• Coincident
• Indicators that usually change at the same time
  as changes in overall business activity (sales)
• Lagging
• Indicators that lag behind changes in overall
  business activity
• Unemployment
• Change in CPI

22
Vocabulary Quiz

1. Real GDP
2. Base year
3. Aggregate supply
4. Depression
5. GDP
6. CPI
7. Net Exports
8. Trough
9. Aggregate
10. PPI
11. Innovations
12. Economic indicators

1. 1. Statistics that measure variables in the
   economy.
2. 2. Inventions and new production techniques
3. 3. Major slowdown of economic activity
4. 4. Lowest part of the business cycle in which
   the downward spiral of the economy levels off.
5. 5. Real domestic output of producers based on the
   rise and fall of the price level
6. 6. Summation of all the individual parts in the
   economy
7. 7. Year used as a point of comparison for other
   years in a series of statistics
8. 8. Adjusted for inflation by applying the price
   deflator
9. 9. Measure of the change in price over time that
   United States producers charge for their goods
   and services
10. 10. Measure of the change in price over time of a
    specific group of goods and services used by the
    average household.
11. 11. The difference between what the nation sells
    to other countries and what it buys from other
    countries
12. 12. Total dollar value of all final goods and
    services produced in a nation in a single year.

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Market Basket Project

• Step I
• Create a survey to determine what kinds of foods
  the families of your peers eat on average each
  week.
• Step 2
• Identify seven categories of food that are bought
  the most often.
• Identify five specific items in each category,
  including brand name and size.
• Identify the locations of the supermarkets that
  are shopped most frequently with these items,
  choose one for your project.
• Step 3
• Accompany your mother/father to the grocery store
  once a week. Price your specific items on a per
  week basis for one month. You must price the
  same products in the same supermarket on the same
  day each week.
• Step 4
• After the first visit to the supermarket, add up
  the total amount of the 15 items in your market
  basket. This number will signify your base year.
• Step 5
• After each of the remaining three visits to the
  supermarket, add up the total amount of your
  market basket again, and compare the new totals
  to your base year.
• Step 6
• Use your totals to construct a price index (see
  page 351-353)
• Step 7
• Analyze your price index
• What was the total amount of your market basket
  in your base year?
• By how much did your price index change from your
  base year to week four?

24
Money
scarce
divisible
durable
portable
acceptable

• Voluntary exchange
• Accepted by the seller for goods or services
• Store of value
• Can be saved
• Unit of accounting
• Divisible

Bartering coincidence of wants (seen in small
societies)
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World Currency
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Characteristics and Types of Money

• Commodity
• Cattle, gems, grain
• Representative
• Money that is backed by gold or silver
• Fiat
• Money that has value because a government fiat,
  or order, has established it as acceptable for
  payment of debts
• All U.S. money today is called fiat money
• Legal tender
• What a government deems acceptable currency for
  public and private debt.

Pennsylvania banknote (bond) 1836
Fiat a formal or official order, authoritative
command
27
American Banking

• 1791 First national bank
• 20 years charter
• Privately owned
• 1792
• Coinage act and the dollar established
• 1816
• Second bank of the U.S
• 1861-1865
• Greenbacks (fiat money)
• 1869-1900
• Gold standard
• 1913
• Federal Reserve System
• To control the amount of money in circulation to
  curb inflation and prevent shortages.
• 1929-1934
• Stock market crash, government regulation of
  banks, FDIC
• 1970s
• Consumer rights laws based.

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Banking Services

• Savings Accounts
• Some offer interest (varies with banks)
• Checking Accounts
• Free Maintenance
• Monthly fee (usually 12.00)
• ATM machines
• Free if you use theirs, if you use another banks
  ATM you could be charged anywhere from .50 to
  3.00
• Debit cards
• Also debt/credit (has the Visa or MasterCard
  logo)
• Overdraft Checking allows a customer to write a
  check for more money than exists in his or her
  account.
• Online Banking
• Pay bills
• Transfer funds
• Some even offer ways to invest online

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Online Bill Pay
Convenient Green Keep track of your
funds Immediately pay your bills
30
Electronic Banking Concerns

• Increased risk of getting private information
  stolen.
• Increase of someone gaining access to your card
  and using your account to purchase goods or
  services
• You only have to pay 50.00 if your card is
  stolen as long as you report it within two
  business days.
• Electronic Fund Transfer Act of 1978
• Increase risk of someone stealing your checking
  account number and paying their bills online.
• Fraud Department

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American Money

• Currency
• Coins are tokens (value is less than what the
  government says it is)
• Five percent
• Bureau of the Mint makes all coins
• Treasury Department (The Bureau of Engraving and
  Printing)
• Federal Reserve Notes in 1,2,5,10,20,100
• They no longer make larger bills to prevent
  criminals from hiding money.
• Checks
• Credit Cards and Debit Cards
• Near Moneys Assets that can be turned into
  money easily without risk of loss of value.
• Savings accounts
• Stocks
• Time Deposits

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The Money Supply

• How much money is in the United States?
• M1 narrowest definition of the money supply
  consists of money that can be spent immediately
  and against which checks can be written
• All currency (bill and coins), all checkable
  deposits and travelers checks.
• M2 broader definition of the money supply
  includes all of M1 plus such near moneys as money
  market mutual fund balances, CDs, and Eurodollars

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34
Chapter 14 Quiz

1. Money that by law must be accepted for payment of
   debts
2. Currency in circulation, travelers checks, plus
   checking-type deposits
3. Money in a bank that can be withdrawn at any time
4. Money that has value because the government has
   established it as acceptable payments for debts
5. Computerized banking functions that previously
   were handled on paper.
6. Assets that can be turned into money fairly
   easily
7. Money that has value aside from its value as
   money
8. Includes all of M1 plus such near moneys as money
   market mutual fund balances, CDs, and
   Eurodollars.
9. Use of money to store purchasing power for later
   use
10. Exchange of goods and services for other goods
    and services must have a coincidence of wants.

• A. fiat money
• B. checkable deposits
• C. M1
• D. commodity money
• E. Near Moneys
• F. Legal tender
• G. Electronic funds transfer
• H. M2
• I. Store of value
• J. Barter

3
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Chapter 14 Assessment and Activities

• FRQ
• (find one on aggregate demand and supply)
• Page 395
• Identifying key terms through thinking critically