Macro Economics AP

(Gross national product): counts what is made by American owned businesses in all countries around the world but not foreign companies in the USA.

gross domestic product: the total market value of all final goods and services produced w/i a country in a given year (includes all domestic and foreign owned production in a country), measure of value (total market value measured in dollars)

goods and services sold to the end user, last in chain

1) Public transfer payments (money moved from one area of society to another), it is instead counted as income. Ex: SS, medicare, welfare, college grants
2) private transfer payments ex: gifts and allowances
3) stock market and other financial transactions
4) used goods
all these are in category called NON productive transactions

If GDP is negative for 2 consecutive quarters

Consumption (C) + investment (Ig) + gov purchases (G) + net exports (Xn) = GDP

spending by individuals or house holds (largest category of GDP)
durable goods (last >3) + non durable goods (last < 3) + services

Expenditures for new produced capital goods and for additions to inventories (all final purchases of machinery and equipment) ex: carpenter buys hammer
All construction ex: factories, roads, houses
Changes in inventory: goods that have been produced but remain unsold (catch is that when good is sold it is counted in GDP for year it was made, ex: made in 2007 but sold in 2009, it is counted as 2007 GDP)

estimate of the amount of capitol warn-out or used up in producing GDP

exports - imports

Ig - deprecation

W + R + I + P = GDP
(What we earn)

1)corporate income tax
2)dividends (share of profits distributed to share holders)
3)undistributed corporate profits (leftovers kept)

w + R + i + P

1)Indirect business tax (sales tax which is the source for how much stuff we sell)
2)Depreciation
3)Net foreign factor income

what was brand new

GDP - Depreciation

NDP - Indirect Business Tax - Net Foreign Factor Income (NFFI)

national income - corp income taxes - undistributed corp profits - SS

personal income - personal income tax

gdp measured in current dollars

gdp adjusted for the price change (inflation/deflation)

(Price of Market Basket in specific year/price of market basket in base year) X 100

measure of the price ofa specific collection of goods and service (market basket) in a given year compared to the price of an identical collection of goods and services in a basea year

price index for gdp

consumer goods, what we use everyday

real gdp/price index (in hundredths)

GDP isn’t a perfect measurement
1)use GDP to compare countries but is limited (better to use PPP or GDP per capita)
2)Misses the underground economic economy ex: illegal activities or babysitting
3)Doesn’t measure non-market transactions
(side note #2 & 3, poorer the country the more likely less of all GDP counted)
4)Doesn’t measure improved product quality
5)Doesn’t measure well being ex: leisure, psychic income non-monetary satisfaction from a job)
6)Doesn’t count externalities (unintended consequences from which you bare no cost, ex: pollution)
7)Doesn’t count contributions and distributions of goods, ex; different forms of governments.

peak, trough, expansion recession/contraction

full employment, gdp near capacity, prices usually rising

gdp declining, prices go down

gdp and employment are bottoming out

gdp and employment are increasing

1)Relationship between capacity and prices
Excess capacity means room to grow without higher prices
No more capacity + lay off workers
2)technological advancement
ex: railroads, internet

# of unemplyed/labor force

number of people willing/able to work

given up trying to find work b/c not finding employment for a long time

frictional, seasonal, structural, cyclical

natural rate of unemployment, full unemployment rate are about 5%, people will be unemployed naturally b/c of influx

farmers, water parks

permanent unemployment, job not coming back

related to business cycle

difference between actual GDP and potential GDP

for every 1% of unemployment above the natural rate, there is a 2% loss in gdp

general rise in price level
(decreases the value of money)

general decline in price level

{(current price level - previous price level)/ previous years price leve} X 100

demand pull, cost push

caused by rising demand (denabd around the world keeps rising)

caused by rising resource prices, if rise is caused by supply shock

(unintended/unanticipated serious increase in resource prices)

nominal income, real income, nominal interest, real interest

in real dollars (nominal is current dollars)

income adjusted for price change

nominal income/price level

in real dollars

interest rate adjusted for price change

nominal interest rate - inflation rate

people with fixed incomes, savings, and lenders/creditors

people with COLA (cost of living adjustment)and borrowers