CIA4U0 Analyzing Current Economic Issues

1. CIA4U0Analyzing Current Economic Issues Chapter 9: An Introduction to Macroeconomics Topic 1: Defining Macroeconomics Topic 2: Gross Domestic Product: A Way To Measure Output P 197-202

2. Defining MacroeconomicsIntroduction • To-date we have been studying microeconomics • Specific/individual markets • Demand and supply for a single good/company • Individual market structures • Simple economies with few products

3. Defining MacroeconomicsIntroduction • Turning now to Macroeconomics • The study of an economy as a whole • All consumers, workers and firms working interchangeably produce a certain “picture” • Like computer pixels vs. a computer image • Uses high-level or composite indictors to measure the health or progress of an economy

4. Defining MacroeconomicsWhy Measure Performance? • We need to measure economic performance to: • Set tax policy • Measure success of economic policies • Compare Canada’s performance to other countries’ • Assess how individual markets affect the whole • Guide contract negotiations • Make investment decisions • We will be looking at: output, employment and price stability

5. Gross Domestic ProductTopic Overview • Introduction • Expenditure Approach • Drawbacks

6. Gross Domestic ProductIntroduction • aka “GDP” • Most commonly used measure of a country’s output • The total market value of all final goods and services produced within a country in one year

7. Gross Domestic ProductIntroduction • Can be calculated in two ways: • Expenditure approach—add up the total that is spent on all final goods and services in one year • Income approach—add up all the income that is earned by the different factors of production (wages, rent, interest, profit) in producing the final goods and services

8. Gross Domestic ProductIntroduction • Measures only: • The final value of goods and services produced (avoids double-counting semi-finished goods) • What is actually consumed (including exported)

9. Gross Domestic ProductExpenditure Approach • Foundation for fiscal and monetary policy (topics to come) • Formula: GDP = C + G + I +(X – M) • C = Consumption (consumer purchases) • G = Government purchases/spending • I = Investment (in new equipment buildings) • X = Exports • M = Imports = “Net Exports”

10. Gross Domestic ProductExpenditure Approach • We used to use Gross National Product • Measures what is actually produced, not consumed • Includes what Canadian subsidiaries make elsewhere • Excludes what foreign companies produce in Canada

11. Gross Domestic ProductExpenditure Approach • GDP is most commonly used tool for measuring and comparing economic growth • Country to country • Year to year • Used to define “recession” • Determines the “standard of living” –the ability of a country to meet the needs and wants of its population

12. Gross Domestic ProductExpenditure Approach • GDP Growth = (GDP2 –GDP1)/GDP1 E.g.: =(10,000-9,500)/9,500 =500/9,500 =5.3%

13. Gross Domestic ProductDrawbacks to GDP • Population size • GDP relative to population-comparisons may not be accurate • Non-market production is not measured • DIY work, homemaking, volunteer work • Underground economy • Illegal sales, under-the-table work, black market • Types of goods produced • Weapons production or cost of political strife don’t add to an economy

14. Gross Domestic ProductDrawbacks to GDP • Leisure • Could produce a lot more if we worked 24/7 • Obviously leisure time has a value to what is produced • Environmental degradation • We don’t take into account environmental impact • Distribution of income • Do all people benefit from profits or are there rich and poor groups?