Economic Goals

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Economic Goals
Growth
Macroeconomics Unit 2 Part 2
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The primary goals of a countrys macroeconomics
policy makers
1. maximize economic growth
2. maximize employment
i.e., low unemployment
3. maintain stable price level
i.e., low inflation
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USA generally the economy is growing or
expanding
secular growth trend the 2.5 - 3.5
average annual growth rates 1950-2000
Japan 4.8
Africa .8
China 3.4
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Our USA GDP?
DATE VALUE (in billions of
) 1940 101.4 1941 126.7 1950
293.8 1960 526.4 1970
1,038.5 1980 2,789.5 1990 5,803.0 2000 9,81
7.0 2007 13,807.5
DATE VALUE (in billions of ) 1929
103.6 1930 91.2 1931 76.5 1932 58.7
1933 56.4 1934 66.0 1935 73.3 1936
83.8
research.stlouisfed.org/fred
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Memorize ... basically our GDP is
13 Trillion
Thats the value of all the new stuff we produce
each year in our economy.
We want growth in our GDP b/c more stuff ?
higher standard of living
USA annual growth rate -- 3
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Commonly examine ... GDP / capita so that we see
make sure that the growth is keeping up with the
rate of the population
GDP / each person in the USA
11 of 17
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Know these flags?
Zambia
Mexico
Luxembourg
Norway
USA
Bangladesh
Greece
Kazakhstan
Switzerland
Japan
Rank these countries from highest to lowest per
capita GDP
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http//www.studentsoftheworld.info/infopays/rank/P
IBH2.html
Greece 23,380
Luxembourg 60,228
Mexico 10,751
USA 41,890
Kazakhstan 7,856
Norway 41,420
Bangladesh 2,053
Switzerland 35,633
Japan 31,267
Zambia 1,023
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USA per capita GDP
41,890 ranked 2nd or 3rd in world
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Nominal GDP v. Real GDP
Nominal
_____________ GDP is GDP calculated at existing
prices. _____________GDP is GDP adjusted for
inflation.
Real
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Growth v. Development
Economic Growth means an increase in real GDP per
capita over a period of time it refers to
economic output more stuff was made
Agricultural Goods
Manufactured Goods
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Growth v. Development
Economic Development is a broader concept meaning
raising living standards poverty reduction how
is the growth distributed among the population?
? Goods
? Goods
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yachts
Growth v. Development
Which country is experiencing Growth and which
Development?
rice
luxury condos
water towers
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Limitations on using GDP per capita to compare
countries
(1) failure of GDP to take into account
unevenness of income distribution
(2) failure of GDP to take into account
non-market activities such as sales under the
counter or prostitution or drug sales
Nigeria -- estimates of underground economy range
as high as 70
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cont Limitations on using GDP per capita to
compare countries
(3) failure of GDP to take into account the
purchasing power of currency in each country
In China 1991 GDP per capita calculated at 300.
In 1992 it was calculated using purchasing power
parity approach at 1,000.
(4) failure of GDP to take into account the
level of spending on military goods v.
consumption goods
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(5) failure of GDP to take into account the
different degrees of accuracy of data collected
(6) failure of GDP to take into account
activities such as building own home, subsistence
farming.
Bangladesh per capita GDP of 350, but there
individuals build own homes, make own clothing,
etc. not reflected in GDP
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Alternative Methods of Measurement
GPI Genuine Progress Indicator makes a
variety of adjustments to GDP so that it better
measures the progress of a society rather than
simply economic activity.
HDI Human Development Index includes
indicators of longevity, knowledge and income
other measures including many made by the United
Nations
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juego -- concentration
20 min
the end