1、8 THE DATA OF MACROECONOMICSCopyright 2004 South-WesternMeasuring a Nations Income Copyright 2004 South-WesternMeasuring a Nations Income Microeconomics Microeconomics is the study of how individual households and firms make decisions and how they interact with one another in markets. Macroeconomics
2、 Macroeconomics is the study of the economy as a whole. Its goal is to explain the economic changes that affect many households, firms, and markets at once.Copyright 2004 South-WesternMeasuring a Nations Income Macroeconomics answers questions like the following: Why is average income high in some c
3、ountries and low in others? Why do prices rise rapidly in some time periods while they are more stable in others? Why do production and employment expand in some years and contract in others? Copyright 2004 South-WesternTHE ECONOMYS INCOME AND EXPENDITURE When judging whether the economy is doing we
4、ll or poorly, it is natural to look at the total income that everyone in the economy is earning.Copyright 2004 South-WesternTHE ECONOMYS INCOME AND EXPENDITURE For an economy as a whole, income must equal expenditure because: Every transaction has a buyer and a seller. Every dollar of spending by so
5、me buyer is a dollar of income for some seller. Copyright 2004 South-WesternTHE MEASUREMENT OF GROSS DOMESTIC PRODUCT Gross domestic product (GDP) is a measure of the income and expenditures of an economy. It is the total market value of all final goods and services produced within a country in a gi
6、ven period of time.Copyright 2004 South-WesternTHE MEASUREMENT OF GROSS DOMESTIC PRODUCT The equality of income and expenditure can be illustrated with the circular-flow diagram.Figure 1 The Circular-Flow DiagramSpendingGoods andservicesboughtRevenueGoodsand servicessoldLabor, land,and capitalIncome
7、 = Flow of inputs and outputs = Flow of dollarsFactors ofproductionWages, rent,and profit FIRMSProduce and sellgoods and servicesHire and use factorsof production Buy and consumegoods and servicesOwn and sell factorsof productionHOUSEHOLDS Households sellFirms buyMARKETSFORFACTORS OF PRODUCTION Firm
8、s sellHouseholds buyMARKETSFORGOODS AND SERVICESCopyright 2004 South-WesternCopyright 2004 South-WesternTHE MEASUREMENT OF GROSS DOMESTIC PRODUCT GDP is the market value of all final goods and services produced within a country in a given period of time.Copyright 2004 South-WesternTHE MEASUREMENT OF
9、 GROSS DOMESTIC PRODUCT “GDP is the Market Value . . .” Output is valued at market prices. “. . . Of All Final . . .” It records only the value of final goods, not intermediate goods (the value is counted only once). “. . . Goods and Services . . . “ It includes both tangible goods (food, clothing,
10、cars) and intangible services (haircuts, housecleaning, doctor visits). Copyright 2004 South-WesternTHE MEASUREMENT OF GROSS DOMESTIC PRODUCT “. . . Produced . . .” It includes goods and services currently produced, not transactions involving goods produced in the past. “ . . . Within a Country . .
11、.” It measures the value of production within the geographic confines of a country.Copyright 2004 South-WesternTHE MEASUREMENT OF GROSS DOMESTIC PRODUCT “. . . In a Given Period of Time.” It measures the value of production that takes place within a specific interval of time, usually a year or a qua
12、rter (three months). Copyright 2004 South-WesternTHE COMPONENTS OF GDP GDP includes all items produced in the economy and sold legally in markets.Copyright 2004 South-WesternTHE COMPONENTS OF GDP What Is Not Counted in GDP? GDP excludes most items that are produced and consumed at home and that neve
13、r enter the marketplace. It excludes items produced and sold illicitly, such as illegal drugs.Copyright 2004 South-WesternTHE COMPONENTS OF GDP GDP (Y) is the sum of the following: Consumption (C) Investment (I) Government Purchases (G) Net Exports (NX)Y = C + I + G + NXCopyright 2004 South-WesternT
14、HE COMPONENTS OF GDP Consumption (C): The spending by households on goods and services, with the exception of purchases of new housing. Investment (I): The spending on capital equipment, inventories, and structures, including new housing.Copyright 2004 South-WesternTHE COMPONENTS OF GDP Government P
15、urchases (G): The spending on goods and services by local, state, and federal governments. Does not include transfer payments because they are not made in exchange for currently produced goods or services. Net Exports (NX): Exports minus imports.Table 1 GDP and Its ComponentsCopyright2004 South-West
16、ernCopyright 2004 South-WesternGDP and Its Components (2001)Consumption 69%Government Purchases18%Net Exports -3 %Investment16%Copyright 2004 South-WesternREAL VERSUS NOMINAL GDP Nominal GDP values the production of goods and services at current prices. Real GDP values the production of goods and se
17、rvices at constant prices. Copyright 2004 South-WesternREAL VERSUS NOMINAL GDP An accurate view of the economy requires adjusting nominal to real GDP by using the GDP deflator.Table 2 Real and Nominal GDPCopyright2004 South-WesternTable 2 Real and Nominal GDPCopyright2004 South-WesternTable 2 Real a
18、nd Nominal GDPCopyright2004 South-WesternCopyright 2004 South-WesternThe GDP Deflator The GDP deflator is a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100. It tells us the rise in nominal GDP that is attributable to a rise in prices rather than a rise in the
19、quantities produced. Copyright 2004 South-WesternThe GDP Deflator The GDP deflator is calculated as follows:GDP deflator =Nominal GDPReal GDP100Copyright 2004 South-WesternThe GDP Deflator Converting Nominal GDP to Real GDP Nominal GDP is converted to real GDP as follows:Real GDPNominal GDPGDP defla
20、tor20XX20XX20XX100Table 2 Real and Nominal GDPCopyright2004 South-WesternFigure 2 Real GDP in the United StatesBillions of1996 Dollars$10,0009,0008,0007,0006,0005,0004,0003,0001970197519801985199020001995Copyright 2004 South-WesternCopyright 2004 South-WesternGDP AND ECONOMIC WELL-BEING GDP is the b
21、est single measure of the economic well-being of a society. GDP per person tells us the income and expenditure of the average person in the economy.Copyright 2004 South-WesternGDP AND ECONOMIC WELL-BEING Higher GDP per person indicates a higher standard of living. GDP is not a perfect measure of the
22、 happiness or quality of life, however.Copyright 2004 South-WesternGDP AND ECONOMIC WELL-BEING Some things that contribute to well-being are not included in GDP. The value of leisure. The value of a clean environment. The value of almost all activity that takes place outside of markets, such as the
23、value of the time parents spend with their children and the value of volunteer work.Table 3 GDP, Life Expectancy, and LiteracyCopyright2004 South-WesternCopyright 2004 South-WesternSummary Because every transaction has a buyer and a seller, the total expenditure in the economy must equal the total i
24、ncome in the economy. Gross Domestic Product (GDP) measures an economys total expenditure on newly produced goods and services and the total income earned from the production of these goods and services.Copyright 2004 South-WesternSummary GDP is the market value of all final goods and services produ
25、ced within a country in a given period of time. GDP is divided among four components of expenditure: consumption, investment, government purchases, and net exports.Copyright 2004 South-WesternSummary Nominal GDP uses current prices to value the economys production. Real GDP uses constant base-year p
26、rices to value the economys production of goods and services. The GDP deflatorcalculated from the ratio of nominal to real GDPmeasures the level of prices in the economy.Copyright 2004 South-WesternSummary GDP is a good measure of economic well-being because people prefer higher to lower incomes. It is not a perfect measure of well-being because some things, such as leisure time and a clean environment, arent measured by GDP.
