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Macroeconomics GDP

Macroeconomics GDP. Chapter 9. By the end of this chapter you should be able to…. Understand what is meant by macroeconomics Examine the components and weaknesses of the GDP as a measure of economic output

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Macroeconomics GDP

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  1. MacroeconomicsGDP Chapter 9

  2. By the end of this chapter you should be able to… • Understand what is meant by macroeconomics • Examine the components and weaknesses of the GDP as a measure of economic output • Understand why unemployment occurs, how unemployment rate is calculated and the impact of unemployment on the economy and citizens of a country • Exployr the components of CPI and how the CPI is used to adjust for the effects of inflation.

  3. In this lesson you will… • Be introduced to macroeconomics • Learn how to measure and calculate GDP and the pros and cons of this performance indicator

  4. Micro vs Marcro • Microeconomics • The study of individual parts of an economy (pieces of the puzzle) • Macroeconomics • The study of the economy as a whole (the puzzle as a whole)

  5. Microeconomimcs vs Macroeconomics

  6. The 3 main indicators of economic performance • 1) Output – Gross Domestic Product (GDP) • Goal: High and Sustained Growth • 2) Employment – Unemployment Rate (U) • Goal: Low unemployment • 3) Price Stability – Consumer Price Index (CPI) • Goal: Stable Prices

  7. GDP News Clip

  8. GDP? Who cares? • Why measure economics performance (GDP)? • If the GDP growth rate is positive that means employment, businesses and incomes are generally growing. • If the GDP growth rate is negative that means that employment, businesses and incomes in general are falling

  9. More Specifically • A measure for an economy’s economic output… • Assists in government decision making for tax and spending policies • Used as measure to see if policies implemented by the government have yielded economic growth • Allows the opportunity to compare output performance with other economies

  10. Why measure economic performance continued • allows us to look at the role and impact of specific industries on the economy as a whole • Measures can be used for contract negotiations (ex. unions) • Measures can be used to assist in investment decision making.

  11. GDP ya you know me! • What is GDP? • Gross Domestic Product • What does GDP measure? • The total economic activity/growth across a country by estimating annual output • Measures market value of total annual output of final goods and services produced in the nation

  12. GDP ya you know me…BREAK IT DOWN! • GDP is broken down into 4 subdivisions • Consumption ( c ): consumer goods and services purchased by households (cars, appliances etc.) • Equals 60%-70% of country’s total GDP • Investment (I): additions to society’s stock, business’s spending on equipment, inventory and buildings to increase production • Government (G): consumption of goods (wages and office supplies) and capital Investment (schools, hospitals, roads) • Net Exports (X-M) • Exports (x): products produced in Canada and sold to foreign buyers • Imports (M): goods purchased in Canada, that were not made in Canada

  13. GDP Calculations (2 ways) • 1) Expenditure Approach • The sum of all final goods and services • GDP = C + I + G + (X-M) • Incomes Approach • The GDP can be calculated by adding all the incomes in a year (wages, rent, interest, profit) in producing the final goods and services • Should both approaches give the same measure? Why or why not? • Expenditure for one person is another person’s income

  14. Handout

  15. Sit back and enjoy the show • GDP Expenditure Approach

  16. Scenario • What do you think would happen with regards to inflation if our economy were to expand/grow? • We would see inflation unemployment levels drop and more people can fined work. • More workers employed = increased demand for consumer goods. • As economic activity increases, both supply and demand increase. • If production cannot keep pace with the demand inflation will increase because there will be a shortage resulting in excess demand leading to higher prices

  17. Scenario • Would an economy experience inflation during a recession? • Most likely not, because unemployment levels rise. • Less jobs means consumer spending decreases • Therefore less demand for goods and services • Prices therefore stabilize

  18. Inflation • What is inflation? • a rise in the general level of prices • Why does inflation occur? • increased cost of production • Increased consumer demand

  19. Nominal GDP vs Real GDP • Nominal GDP • Does not take inflation into account • Real GDP • GDP calculated with inflation (i.e. at current dollar value) • A more accurate and truer representation of a country’s output

  20. Real GDP

  21. Real GDP Growth Rate (real GDP year 2 – Real GDP year 1) Real GDP = Growth rate real GDP year 1 X 100

  22. Handout • Use your handout of Canada’s GDP to answer the following questions • 1) What is the percentage of Canada’s Real GDP growth from 2010 to 2011 ? • 2) What is the percentage of Canada’s Real GDP growth from 2007 to 2011?

  23. Canada's Real GDP

  24. (GDP year 2 – GDP year 1) Real GDP = Growth rate GDP year 1 • 1) 2010’s GDP = $1,624,608 (in millions) 2011’s GDP = $1,718,685 (in millions) GDP = 1,718,685 – 1,624,608 Growth rate 1,624,608 GDP growth from 2010 – 2011 = 5.7% Real GDP is 3% growth X 100 X 100

  25. ( GDP year 2 – GDP year 1) GDP = Growth rate GDP year 1 2007’s GDP = $1,529,589 (in millions) 2011’s GDP=$1,718,685 (in millions) GDP = $1,718,685 - $1,529,589 Growth Rate $1,529,589 The GDP growth rate from 2007 to 2011 is approximately 12.4% Real GDP growth rate is 12% X 100 X 100

  26. How much GDP growth is ideal • The ideal GDP growth rate is one that can be sustained year after year. • Think of GDP growth rate like our bodies. Our bodily temperature is 98.6 degrees F. And we want to keep it there. That is the ideal temperature for us to maintain healthy growth. • However, if your temperature is lower than the ideal, you know you’re sick. If it’s too low, you’re near death. But a higher temperature can also mean you’re sick. If it’s over 100, you have a fever. If it’s above 104 degrees for any period of time you’re deathly ill.

  27. If the economy grows too slowly it’s not healthy. But, if it grows too fast, that’s not ideal, either. • Why is this the case? The economy overheats (so to speak) • Too much money chasing too few real growth opportunities. Eventually, good money is invested in poor business growth opportunities. Investments start losing money and as a result confidence is lost. Panic then occurs and results in selling of many more investments due to fear. Panic doesn’t stop until prices are low enough to attract investors

  28. 2008-2009 Recession • Why do you think the 2008-2009 recession occurred?

  29. 2008-2009 Recession • This is what happened during the 2008- 2009 recession. GDP was above 4% for many quarters. Housing alone peaked at over 7% growth. Once the housing bubble burst then everything else went with it. GDP fell sharply (contraction phase)

  30. GDP the good, the bad and the ugly • We’ve talked about the positives of measuring economic output? Can you think of any negatives?

  31. GDP Drawbacks • A number of economists have criticized the GDP as a measure of economic output • 1) Population Size • A GDP growth of 3% can be misleading if the population of a country grows by 5%. In this case we need to divide the GDP by the number of people (per capita GDP)

  32. 2) Non-market production is not measured • GDP does not measure everything • Examples: people who renovate homes, homemakers, voluntary services • 3) GDP does not measure output of underground economies (hidden economies) • When a paper trail is not present GDP cannot be measured – under-the-table transactions that occur so people can avoid paying taxes. • Economists believe this could add anywhere from 3%-20% of the total GDP

  33. 4) Types of goods produced • Many believe that goods and services that take away from a country’s well being (decrease in GDP) should not be included • Examples; policing riots and guns • 5) Leisure • GDP does not take into account leisure time. • Leisure time = greater well being = positive GDP growth • A country could have people work 18 hour days 7 days a week and they most likely would generate a higher GDP growth rate. However, there would be less leisure time and thus lower well being

  34. Environmental Degradation • GDP does not take into effect the negative effect industry has on our environment • Environmental degradation is actually rewarded • Example: Oil spill of the cost of Florida, has to be cleaned up. That contributes to our GDP • Distribution of income • GDP does not take how evenly income is distributed among it’s citizens. • Even though you have positive GDP growth you can have only a small portion of the population the benefits from that growth. The wealthy becoming wealthier and the poorer becoming poorer.

  35. Agenda • Review what we learned (GDP) • Introduction to Unemployment • Four Walls Activity • Discussion/Lecture • Group Work

  36. What have we already learned about GDP • What are 3 economic indicators of economic performance? • What is GDP and what does it measure? • Is GDP an accurate measure?

  37. Unemployment

  38. Today’s Lesson • Labour Force • What is it? • Who Qualifies? • What role does it play? • Labour Force Surveys (LFS) • Unemployment • What is it? • Who qualifies? • Is it an accurate measure of true unemployment • The 4 types of unemployment

  39. Let’s Brainstorm Unemployment

  40. 4 Walls • There is a sign in each corner of the classroom. • I will read the statement on the board and you are to think about the statement and walk to the wall that agrees with your point of view.

  41. Let’s walk through the first one together • Joe works a 20 hour/wk minimum wage job, but would like to work full time. Despite not being able to find a full-time job and having difficulty making ends meet, he is still considered employed.

  42. A homemaker (stay at home parent), should be considered as an employed individual.

  43. Canada’s national unemployment rate is 7.2%. This number greatly underestimates the percentage of people unemployed in the country.

  44. Lack of education is the greatest contributor to high unemployment levels.

  45. Seasonal unemployment – where people choose to only work during specific seasons of the year (ie. resorts, camps, construction etc.), should not be allowed to collect unemployment benefits during the off-season.

  46. Labour Force • Before we can truly understand unemployment, we must define labour force • Labour Force - all people who either have a job (employed) or are actively seeking employment (unemployed).

  47. Unemployment • Unemployment? • Anyone in the labour force that is not working and is actively seeking work • Do you believe these definitions provide an accurate representation of our economy’s true labour force? • Part time workers looking for full time work • Any amount of work that you get paid for is considered employed • Weren’t really looking for a job but said they were • People can eventually give up trying to find a job

  48. Unemployment Video Clip

  49. Population • The population is grouped into 3 categories • Those not eligible to work • Institutionalized individuals • Under 15 years of age • Those who are eligible to be in the workforce but choose not to participate • Retirees • Students 15 and over who don’t need to have a job • Homemakers – stay at home parent • Military 3)The labour force – all the people who either have a job or are actively seeking employment (unemployed).

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