Macroeconomic Performance

1
Macroeconomic Performance

• Chapter 12
• Section 1- Measuring the Nations Output Income

2
Macroeconomics

• Part of economics that deals with the economy as
  a whole
• Uses aggregate (total) measures of output,
  income, prices, and employment
• Gross Domestic Product (GDP) is one of our most
  important macro measures in our economy

3
GDP The Measure of National Output

• Dollar value of all final goods and services
  produced within a countrys borders during a
  one-year period
• Can include foreign companies as long as the
  products are produced in the U.S.
• Does not include U.S. firms producing in other
  countries.

4
Things that are excluded

• Intermediate products
• Secondhand sales
• Nonmarket transactions
• Underground economy

5
Current GDP vs. Real GDP

• In order to make accurate comparisons over time,
  GDP must be adjusted for inflation
• Base year- year that serves as the basis of
  comparison for all other years.
• Real GDP- GDP after adjustments for inflation
• Current GDP- GDP in current prices, unadjusted
  for inflation

6
GDP per Capita

• GDP on a per person basis
• GDP/Population
• Why is per capita GDP a better measure of a
  countrys prosperity than total GDP?
• Limitations of GDP
• Tells us nothing about composition of output
• Tells little about impact of production on
  quality of life

7
GNP- The Measure of National Income

• Dollar value of final goods services produced
  in one year with labor property owned by a
  countrys residents
• Measures income of all Americans whether the
  goods services are produced in the U.S. or
  other countries.

8
GNP (Cont.)

• Net national product (NNP)
• GNP less depreciation
• National income (NI)
• Income left after all taxes are subtracted from
  NNP (except corporate profits tax)
• Personal income (PI)
• Total amount of income going to the consumer
  sector before taxes
• Disposable personal income (DPI)
• Personal income less individual income taxes

9
Economic sectors circular flows

• Types of sectors
• Consumer (largest sector in the economy)
• Investment
• Government
• Foreign
• Summarizing -Why might the foreign sector appear
  to be insignificant when, in fact, large numbers
  of goods services may be traded?

10
Output-Expenditures Model

• Macroeconomic model describing aggregate demand
  by the consumer, investment, government,
  foreign sectors
• GDP C I G (X-M)
• Net exports of goods services
• total exports total imports

11
Population Economic Growth

• Section 2

12
Census

• Complete count of the population, including place
  of residence
• The Constitution of the U.S. requires the
  government to conduct a census every 10 years

13
Population of the U.S.

• Counting the Population
• Urban population
• Rural population
• Historical growth
• Regional change
• Center of population
• Consequences of growth

14
Infrastructure

• Highways, mass transit, communications, power,
  water, sewerage, and other public goods needed to
  support a population
• Important to pay attention to future population
  trends so there are not problems in the future

15
Projected Population Trends

• Age gender
• Baby boom
• Population pyramid
• Dependency ratio
• Race ethnicity
• Population growth
• Fertility rate
• Life expectancy
• Future population growth

16
Poverty the Distribution of Income

• Section 3

17
Poverty threshold

• Annual dollar income used to determine the of
  people in poverty.
• Poverty guidelines- administrative guidelines
  used to determine eligibility for certain federal
  programs

18
Distribution of Income

• Lorenz curve- graph showing how the actual
  distribution of income differs from an equal
  distribution
• Only money income is counted (not Medicaid, food
  stamps, subsidized housing)

19
Household Income Ranked by Quintiles
1980 2004
Quintiles Quintiles Cumulative
Lowest fifth 4.2 3.4 3.4
2nd fifth 10.2 8.7 12.1
3rd fifth 16.8 14.7 26.8
4th fifth 24.7 23.1 49.9
Highest fifth 44.1 50.1 100.0
Top 5 16.5 21.8
20
Reasons for Income Inequality

• Education
• Wealth
• Tax law changes
• Decline of unions
• More service jobs
• Monopoly power
• Discrimination
• Changing family structure

21
Antipoverty programs

• Welfare
• Income assistance
• General assistance
• Food stamps
• Medicaid
• Social service programs
• Tax credits
• Earned income tax credit
• Enterprise zones
• Workfare programs
• Negative income tax