Macro Measures and International Trades

What is macroeconomics?

study of large economy as a whole (instead of analyzing one consumer and on business)

why was macro created?

1. measure the health of the whole economy

2. guide government policies to fix problems

what are the 3 major economic goals for every country?

1. promote economic growth

2. limit unemployment

3. keep prices stable (limit inflation)

what is the most important measure of growth?

GDP (gross domestic product)

what is gdp?

the dollar value of all final goods and services produced within a country’s borders in one year

what does gdp tell us?

GDP indicates the economic health of a country by measuring the total value of goods and services produced, reflecting the country's economic performance and growth over time.

how do you use gdp?

1. compare to previous years

2. compare policy changes

   1. compare to other countries

what is the equation used to measure growth from year to year?

(year 2 - year 1) / year 1 × 100

what is NOT included in gdp?

intermediate goods, non production transactions, non-market (illegal) activities

what are intermediate goods

Goods used in the production of final products, not counted in GDP to avoid double counting.

what are non production transactions

Transactions that do not involve the production of goods or services

what are non-market (illegal) activities

Activities that are not formally recorded in the economy

name the 2 ways to calculate gdp

expenditures approach, income approach

what is the expenditures approach?

adding up all the spending on final goods and services produced in a given year

what is the income approach?

adding all the income that resulted from selling all final goods and services produced in a given year

what are the 4 components of gdp in expenditures approach

consumer spending, investment, government spending, net exports

what is the equation to calculate for gdp

GDP = C + I + G + Xn

does government spending include social security?

no, government spending includes items like bombs or tanks, but no social security

how is net exports calculated?

Net exports = exports - imports

what is nominal gdp

the dollar value based on prices at the time of collection

what is real gdp?

gdp adjusted for inflation

what is inflation?

a rising general level of prices

how is real gdp calculated from nominal gdp?

real gdp deflates nominal gdp by adjusting for inflation in terms of base year prices

how is the standard of living measured?

1. by how well the economy is doing

2. it needs to reflect size of nation’s population

what is real gdp per capita?

• real gdp divided by total population

• it identifies the average output per person

what factors affect productivity?

1. economic system

2. property rights

3. capital

4. human capita (knowledge)

5. natural resources

the equation for creating gdp deflated

gdp deflated = nominal gdp/ real gdp x 100

what is the business cycle

the fluctuations in economic activity an economy experiences over time

what responsibilities does the government have?

• promote long-term growth

• prevent unemployment

• prevent inflation

what is economic growth?

1. increase in real gdp over time

2. increase in real gdp per capita over time

how does this connect to ppc?

1. full employment

2. unemployment

3. inflation

shifters of ppc that affect gdp

1. change in quantity/ quality of resources

2. changes in technology

3. changes in trade

equation to calculate unemployment rate

# unemployed / # in labor force x 100

who’s considered unemployed?

• above 16 year old

• able and willing to work

• not institutionalized

• not in military, in school full time, or retired

what is the labor force participation

the sum of the unemployed and employed to number of people in labor force = indicator of the willingness of people of working age to take jobs

equation for labor force participation rate

# in labor force / # working-age population x 100

types of unemployment

1. frictional unemployment

2. seasonal unemployment

3. structural unemployment

   • technological unemployment

4. cyclical unemployment

what is frictional unemployment?

individuals are qualified workers with transferable skills but they are not working

what is season unemployment?

unemployment due to the time of year and nature of the job (will come back)

what is structural unemployment?

• when changes in labor force make some skills obsolete

• jobs do not return

why do jobs lost to structural unemployment not come back?

workers do not have transferable skills, they must learn new skills to find employment

what is creative destruction?

the permanent loss of jobs due to changes in the labor force

what is technological unemployment?

a type of structural unemployment where automation and machinery replace workers

what is cyclical unemployment?

• unemployment caused by economic downturns (recession)

• as demand for goods and services falls, demand for labor also falls, and workers are fired

what is the natural rate of unemployment?

the unemployment rate when the economy is at full employment (includes only structural and frictional unemployment)

what is okun’s law?

when unemployment rises 1 percent above the natural rate, gdp falls by about 2 percent

what can misdiagnose the actual unemployment rate?

• discouraged job seekers

• part-time workers

• race/ age inequalities

• illegal labor