Why Or Why not How do we know if the economy is doing well or not GDP CHAPTER 121 Why does measuring the Economy matter National income accounting uses statistical measures of income spending and output to help people understand what is happening to a countrys economy ID: 656821
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Slide1
Starter
Do you think the state of the economy has any affects on the student loans you can receive for college or the jobs you may have?
Why? Or Why not?
How do
we know
if the economy is doing well or not?Slide2
GDP
CHAPTER 12.1Slide3
Why does measuring the Economy matter?
National income accounting uses statistical measures of income, spending, and output to help people understand what is happening to a country's economy.
The economic decisions of millions of individuals determine the fate of the nation's economy
.
Understanding what is happening to the country's economy will help you make better personal economic decisions.
Macroeconomists use national income
accounting:
statistical
measures that track nation's income, spending,
output
gross
domestic product (GDP) is most important measure Slide4
Gross Domestic Product (GDP)
GDP--market 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 (Ex: included- cheeseburger, excluded- cow parts)
must
be produced during the time period, regardless of when sold
(Ex: included-new car, excluded- used car)
Time period is usually a year, or quarter (3 months)
must
be produced within nation's borders Slide5
Calculating GDP
Expenditures approach often used to measure GDP; tracks four
sectors
GDP=C+I+G+X
Consumption
--household spending on durable, nondurable goods, services
Investment
--business spending on capital
goods (construction or equipment), inventory (unsold goods kept on hand)
Government
spending--federal, state, local; not transfer
payments (defense, highways, education)
Net
exports--value of exports minus value of imports Slide6
Types of GDP
When GDP grows, economy creates more jobs and business opportunities
Nominal
GDP--price levels for the year in which GDP is measured - states GDP in terms of current value of goods and services
Real
GDP--GDP adjusted for changes in prices
estimate
of GDP if prices were to remain
constant from year to year Slide7
What GDP Does Not Measure
GDP
does not measure all output, such
as
nonmarket
activities--free services with potential economic value
(Ex:
performing own home repairs, volunteer
work)
underground
economy--unreported market activities
Illegal activities are
unreported
when
goods are rationed or restricted, black market arises
Legal
activities paid for in cash not always declared
Estimates
suggest underground economy 8 to 10 percent of U.S. GDP
GDP
also does not measure quality of life
Countries
with high GDPs have high living
standards
GDP
does not show how goods and services are
distributed
GDP
does not show what goods are being made or services offered Slide8
Other Economic Performance Measures
Other measures of economic performance derived by adjusting GDP
Gross
national product (GNP)--market value of all final goods,
services
GDP
plus products produced abroad; minus domestic products of foreign nations
Net
national product (NNP)--GNP minus depreciation of capital stock
National
income (NI)--total income from production of goods, services
Personal
income (PI)--income received by people from all sources
Disposable
personal income (DPI)--personal income minus income
taxes
actual income available for consumer spending