Macroeconomics

• Macroeconomics - the performance, structure, behavior, and decision-making of the entire economy. • This includes a national, regional, or

global economy• An economy is measured using

economic indicators

“Time Vocabulary”Annual – one year

Quarter – three monthsFirst Quarter (Q1): January – MarchSecond Quarter (Q2): April – May Third Quarter (Q3): June – AugustFourth Quarter (Q4): September - December

• Inflation – an increase in prices as a result of a growing economy

• Economic indicators are used to measure and explain inflation

Economic Indicators1) Gross Domestic Product (GDP)• The total value of all final goods and services

produced within a country’s borders in a given year

• It is measured by estimating annual amounts spent on:– Consumer goods and services– Business goods and services– Government goods and services–Net exports (goods sent out of country) or

imports (goods brought into country) of goods and services

• GDP is a good indicator of “standard of living” (level of economic prosperity—are people living well?)

***GDP growth is most important statistic about economy’s health

– If GDP growing – jobs, personal income, and businesses increasing

– If GDP slowing down – businesses slow down, no hiring, consumers not buy g/s

– If GDP growth rate is negative recession

• U.S. ideal GDP growth rage range 2-3%– But in 2007: Q1 .1%, Q2 4.8%, Q3 4.8%, Q4

-.02%

2) Gross National Product (GNP)- the amount of goods produced by a country in one year- Can be misleading:

1) only looks at final product2) foreign business

3) Consumer Price Index (CPI)

• Measures the change in the price of a standard group of goods and services (market basket) of a typical urban consumer.

• Economic growth = CPI rate increases

• Economic decline = CPI rate of increase slows or prices may even fall

• Measures changes in purchasing power

Market Basket1. Food and drinks (Examples: breakfast cereal, milk,

coffee, chicken, wine, full service meals, snacks)

2. Housing (Examples: rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)

3. Apparel (Examples: men's shirts and sweaters, women's dresses, jewelry)

4. Transportation (Examples: new vehicles, airline fares, gasoline, motor vehicle insurance)

5. Medical Care (Examples: prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)

6. Entertainment (Examples: televisions, toys, pets and pet products, sports equipment, admissions)

7. Education and Communication (Examples: college tuition, postage, telephone services, computer software and accessories)

8. Other goods and services (Examples: tobacco and smoking products, haircuts and other personal services, funeral expenses)

4) Industrial Production- Measures output of American industry - Includes manufacturing, mining, and utilities

Economic Growth – IP increasesEconomic Decline – IP decreases

5) Unemployment RateMeasures percentage of people in

labor force who were not working during the week of the survey, but had been looking for work within the previous four weeks

6) Poverty Line/Poverty “Threshold”

•Dollar amounts used to determine poverty status •Thresholds vary according to: – Size of the family– Ages of the members

Related children under 18 years

Size of family unit Eight

None One Two Three Four Five Six Seven or more

One person (unrelated individual). Under 65 years....................……

11,702

65 years and over.................……

10,788

Two people........................………. Householder under 65 years..........

15,063

15,504

Householder 65 years and over....

13,596

15,446

Three people...............……………

17,595

18,106

18,123

Four people...............……………

23,201

23,581

22,811

22,891

Five people.................……………

27,979

28,386

27,517

26,844

26,434

Six people...................……………

32,181

32,309

31,643

31,005

30,056

29,494

Seven people.....................………

37,029

37,260

36,463

35,907

34,872

33,665

32,340

Eight people....................…………

41,414

41,779

41,027

40,368

39,433

38,247

37,011

36,697

Nine people or more................……

49,818

50,059

49,393

48,835

47,917

46,654

45,512

45,229

43,487

Source: U.S. Census Bureau.