Warm Up

• What is Macro Economics

•What market structure has the highest number of firms and the least amount of control over its prices?

•What business structure is the easiest to organize, but has high liability.

Gross Domestic Product • The total market value of all goods and services produced in a nation over a specified period of time, usually one year.

•The most common way of measuring the GDP is called the expenditure approach.

The Expenditure Approach

• When using the expenditure Approach the GDP is equal to 1. the total of all consumer spending 2. total business investment 3. total government spending 4. and total net exports

GPD formula

• GDP = C + I + G + Xn • C: Total consumer Spending • I: Total Business Investment • G: Total Government spending • Xn: Total Exports- Imports

Exports –Imports

• The reason why we subtract our imports from our exports is because: The Money we spend on goods imported from other countries takes money out of our economy.

Real GDP

• This is an accurate measurement of how much the economy is growing.

• Real GDP is when you use a price index to account for inflation.

Nominal GDP

• Nominal GDP: is the GDP before accounting for inflation.

• What was inflation again?

Why Inflation

• Inflation is an increase in the prices of goods.

• So we may actually be spending more money but not actually buying more goods.

• This is why it must be taken into account when dealing with GDP

Consumer Price Index

• Basket of Goods: Typical items bought by an average family in a month.

• CPI = cost of today’s market basket divided by cost of market basket in previous year X 100.

• CPI will give you the level of inflation, which is then subtracted from nominal GDP to give you real GDP