Economics Unit 12.1A: Money and financial institutions Macroeconomic indicators Viktor Ni, NIS Lesson objective

Show awareness of key macroeconomic indicators: GDP; GNP; NNP; HDI; inflation rate; unemployment rate; and trade position

Gross domestic product (GDP) Human Development Index (HDI) GNP (Gross-National Product) Inflation rate Net national product (NNP)

Unemployment rate Questions 1. What is it? 2. Who is it used by? 3. Why is it important? 4. How do we calculate it? 5. What does it mean?

Site: Part 1 GDP

Gross domestic product (GDP) the market value of all final goods and services produced within a country in a given period of time Gross domestic product (GDP) GDP Is the Market Value . . . GDP adds together many different kinds of products into a single measure of the value of economic activity

through market prices. . . . of All . . . It includes all items produced in the economy and sold legally in markets. excludes most items produced and sold illicitly (drags) . . . Final . . . When International Paper makes paper, which

Hallmark then uses to make a greeting card, the paper is called an intermediate good, and the card is called a final good. Incorrectly to count the paper twice. . . . Goods and Services . . . GDP includes both tangible goods (food, clothing, cars) and intangible services (haircuts, housecleaning, doctor visits) . . . Produced . . .

GDP includes goods and services currently produced. It does not include transactions involving items produced in the past. . . . Within a Country . . . GDP measures the value of production within the geographic confines of a country. When a Canadian citizen works temporarily in the United States, her production is part of U.S. GDP. When an American citizen owns a factory in Haiti, the

production at his factory is NOT part of U.S. GDP. (It is part of Haitis GDP.) Thus, items are included in a nations GDP if they are produced domestically, regardless of the nationality of the producer. . . . In a Given Period of Time. - Usually, that interval is a year or a quarter (three months) - The GDP data reported in the news are always

seasonally adjusted. Quick Quiz Which contributes more to GDPthe production of a pound of hamburger or the production of a pound of caviar? Why?

A pound of caviar contributes more to GDP because it costs more than a pound of hamburger. The contribution to GDP is measured by market value and the price of a pound of caviar is much higher than the price of a pound of hamburger. Answer

Formula of GDP GDP is divided into four components: consumption (C), investment (I), government purchases (G), and net exports (NX): Y = C + I + G + NX. Where to include: Purchases of new housing? Y = C + I + G + NX

consumption (C) investment (I) government purchases (G)

net exports (NX) (E-M) Answer Consumption is spending by households on goods and services, with the exception of purchases of new housing. Investment - spending on capital equipment, inventories, and structures, including household purchases of new housing

Government purchases (government consumption expenditure and gross investment) spending on goods and services by local, state, and federal governments Counted: The salary of an Army general or a schoolteacher NOT Counted: Social Security benefit to a person who is elderly or an

unemployment insurance benefit to a worker who was recently laid off (transfer payments) Because GDP is intended to measure income from, and expenditure on, the production of goods and services, transfer payments are not counted as part of government purchases. Net exports - spending on domestically produced goods

by foreigners (exports) minus spending on foreign goods by domestic residents (imports) For example, suppose that a household buys a $30,000 car from Volvo, the Swedish carmaker. That transaction increases consumption by $30,000 because car purchases are part of consumer spending. It also reduces net exports by $30,000 because the car is an import.

In other words, net exports include goods and services produced abroad (with a minus sign) because these goods and services are included in consumption, investment, and government purchases (with a plus sign). The Components of U.S. GDP Table 1 shows the composition of U.S. GDP in 2009. In this year, the GDP of the United States was over $14 trillion. Dividing this number by the 2009 U.S. population of 307 million yields GDP per person (sometimes called GDP per capita). In 2009 the

income and expenditure of the average American was $46,372. Consumption made up 71 percent of GDP, or $32,823 per person. Investment was $5,278 per person. Government purchases were $9,540 per person. Net exports were $1,269 per person. This number is negative because Americans spent more on foreign goods than foreigners spent on American goods. These data come from the Bureau of Economic Analysis, the part of the U.S. Department of Commerce that produces the national income accounts. You can find more recent data on GDP at its website,

Part 2 GNP Gross national product (GNP) is the total income earned by a nations permanent residents (called nationals). It differs from GDP by including income that our citizens earn abroad and excluding income that foreigners

earn here. For example, when a Canadian citizen works temporarily in the United States, her production is part of U.S. GDP, but it is not part of U.S. GNP. (It is part of Canadas GNP.) For most countries, including the United States, domestic residents are responsible for most domestic production, so GDP and GNP are quite close. :

: = + , = ( , ) ( , );


Work and Travel () > ,

, . () < , , . Net national product (NNP)

Net national product (NNP) is the total income of a nations residents (GNP) minus losses from depreciation. Depreciation is the wear and tear on the economys stock of equipment and structures, such as trucks rusting and computers becoming obsolete. In the national income accounts prepared by the Department of Commerce, depreciation is

called the consumption of fixed capital. Part 3 NNP and NDP Net national product (NNP) refers to gross national product (GNP), i.e. the total market value of all final goods and services

produced by the factors of production of a country or other polity during a given time period, minus depreciation.[1] Similarly, net domestic product(NDP) corresponds to gross domestic product (GDP) minus depreciation.[2] Depreciation describes the devaluation of fixed capital through wear and tear associated with http://

its use in productive activities. In national accounting, net national product (NNP) and net domestic product (NDP) are given by the two following formulas: NNP = GNP - Depreciation NDP = GDP - Depreciation

Methods of depreciation Straight-line method: (Residual Value) ( ): : $1000

: 5 . .

: GDP () ( ), NNP ()

() . .. 45

60 361 103 81 35 100 202 146 42

48 - . .

Part 4 HDI The Human Development Index (HDI) is a composite statistic of life expectancy, education, and income indices used to rank countries into four tiers of

human development. HDI 1. Life Expectancy Index (LEI) 2. Education Index (EI) 2.1 Mean Years of Schooling Index (MYSI) [7] 2.2 Expected Years of Schooling Index (EYSI) [8]

3. Income Index (II) Homework : GDP GNP NNP HDI

Unemployment Answers: Work and Travel: GDP GNP : GNP

Next lesson Real versus Nominal GDP

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