Macroeconomics

Macroeconomic Indicators

asist. univ. dr. ec.

Alexis DAJ

Macroeconomics

Macroeconomics and Sustainable Development



1. Definition In 1992, a World Bank study estimated that there were at least 33 definitions in the literature - all covering one or more aspects of economic, social, and environmental objectives. The general definition should be one that takes the viewpoint of the economist, with the concerns of the sociologist and ecologist at heart.

Macroeconomics

1. Definition continued This definition fits nicely with the IMFs concept of "high quality growth," which we believe is central to sustainable development. Such growth is defined as "economic growth that brings lasting employment gains and poverty reduction; provides greater equality of income through greater equality of opportunity, including for women; and protects the environment." The third element, "protects the environment," may sound odd coming from an institution so concerned with macroeconomy stability.

Macroeconomics

 

1. Definition continued Paramount objectives:

economic growth and the efficient use of resources.

these objectives must be achieved in ways that allow the simultaneous pursuit of social and ecological objectives. where there are tradeoffs, governments should support the adoption of complementary policies, such as targeted social safety nets, protection of essential public education and health care expenditures, and fiscal and non-fiscal measures to help conserve natural resources and control pollution.

Macroeconomics

2. Link Between Macroeconomics and the Environment At the time of the Rio Earth Summit, the link between macroeconomics and the environment was largely unexplored. NEVERTHELESS Macroeconomics and the environment are inextricably linked:
The old concept of environment as a constraint to development has given way to one of environment as a partner in growth and development. Studies show that macroeconomic stability is a minimum and necessary condition for preserving the environment. Stability enhances growth prospects, increases employment and incomes, and ensures that the right price incentives work to preserve the environment.

Macroeconomics

2. Link Between Macroeconomics and the Environment continued Macroeconomics and the environment are inextricably linked:
Furthermore, any strategy to preserve the environment will be undermined by macroeconomic instability. It is true that macroeconomic policy reforms may hurt the environment, but the only time this occurs is when sound environmental policies are lacking. Thus the answer is not to forgo the necessary macroeconomic policy reforms, but to ensure that sound environmental policies are in place. Environmental problems, including those relating to specific regions and the world as a whole, hurt growth. Human welfare is reduced by ill health and premature mortality caused by environmental problems. Studies also give abundant evidence of lost labor productivity resulting from ill health, forgone crop output from soil degradation, and lost fisheries output and tourism receipts from coastal erosion.


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Macroeconomic Indicators

Macroeconomic Indicators
 

1. Definition The economic activities which take place within the framework of a national economy are concretized in a wide range of goods and services. This output is reflected with the help of economic indicators. The economic indicator reveals the numeric expression of the quantitative side of the economic phenomena and processes in a certain space and time conditions.

Macroeconomic Indicators

1. Macroeconomic Indicators continued The economic indicator permits to make evident these processes and phenomena quantitatively, structurally and qualitatively and to observe the interdependences between some certain subsystems of the national economy. According to the level these indicators are calculated for, there can be microeconomic and macroeconomic indicators; While microeconomic indicators show the results at the level of individual economic agent, macroeconomic indicators measures the performance at the level of national economy.

Macroeconomic Indicators

1. Macroeconomic Indicators continued The most important macroeconomic indicators are:

aggregate product, gross domestic product, net domestic product, gross national product, net national product, national income and personal income of the population.

Macroeconomic Indicators

2. National Income Accounting & Gross Domestic Product

    

National Income Accounting Defined Measures of Output GDP vs Real GDP GDP Per Capita Shortcomings of GDP as a Measure of Economic Well-Being

Macroeconomic Indicators

Measures of Output (Production)

National Income Accounting refers to the measurement of aggregate economic activity, particularly national income and its components. Aggregate = Total or Gross

Macroeconomic Indicators

Measures of Output (Production)

The Gross National Product ( GNP) represents the market value of the final goods and services produced in a certain period of time, usually one year, by the economical agents of a country, regardless of their existence inside or outside the boundaries of that country. The Gross Domestic Product (GDP) represents the gross added value of the final output, produced by the economic agents inside the borders of a country, no matter if they belong or not to that country.

Macroeconomic Indicators

Measures of Output (Production)

 

The Gross National Product ( GNP) The Gross Domestic Product (GDP) In the two definitions above was mentioned the word final: final output, final goods etc. When we speak about this concept, we refer to the goods and services produced in the course of a certain period of time, and which are no longer used to produce any other goods. In case they are used in an ulterior process of production we speak about intermediary consumption.

 

Macroeconomic Indicators

Measures of Output (Production)

 

The Gross National Product ( GNP) The Gross Domestic Product (GDP) If we add to the Gross Domestic Product the intermediary consumption, we get another indicator, the Gross Aggregate Product. It is important not to include the intermediary consumption into the GDP, in order to avoid the double registering, whose effects are the altered images of the macroeconomic results. The final goods, included in the calculation of GDP, are meant to get directly into consumption, being sold to final consumers.

Macroeconomic Indicators

Measures of Output (Production)

Gross Domestic Product is the total value of final output produced within a nations borders in a given time period at current market prices Gross Domestic Product is also referred to as

Nominal Gross Domestic Product Current Gross Domestic Product

Macroeconomic Indicators

Measuring Gross Domestic Product

The Expenditures Approach

C + I + G + (Xn) = GDP

The Flow of Income Approach

Households supply business with the factors of production in return for payment in the form of wages, profits, rent, and interest

The Value Added Approach

Adds the increase in value at each stage of the production and distribution process

Macroeconomic Indicators

How GDP Is Measured?

Income (wages, salary, rent, interest, profits) Flow of Income Approach Value of what is produced

Firms Expenditures Approach

Same As

Households

Value of what is spent

Expenditures by Consumers, Investors, Government, and Net Exports

(GDP = C + I + G + Xn )
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Macroeconomic Indicators

The Flow of Income Approach

Macroeconomic Indicators

The Flow of Income Approach

Macroeconomic Indicators

The Flow of Income Approach



GDP (Gross Domestic Product) - Depreciation Net Domestic Product - Indirect business taxes and subsidies Domestic Income (DI) = National Income = (W + R + I + P) - Earnings not received + Receipts not earned Personal Income (PI) - Personal Taxes Disposable Personal Income (DPI)

Macroeconomic Indicators

Value Added in Various Stages of Production

Stages of Production
1. Farmer grows wheat, sells it to miller 2. Miller grinds to flour, sells to baker 3. Baker bakes bagel, sells it to retailer 4. Bagel store sells bagel to consumer

Value of Transactions
$0.12/kg $0.28/kg $0.60/kg $0.75/kg

Value Added
$0.12/kg $0.16/kg $0.32/kg $0.15/kg

Total

$1.75/kg

$0.75/kg

Macroeconomic Indicators

Two Things to Avoid when Compiling GDP



Multiple counting
Only expenditures on final products what consumers, businesses, and government units buy for their own use belong in GDP
 

Intermediate goods are not counted Used goods are not counted

Transfer payments
Transfer payments are not payments for currently produced goods and services
 

When they are spent for final goods and services they will go into GDP as consumer spending Financial transactions dont go into GDP

Macroeconomic Indicators

GDP vs Real GDP Removing the effect of Inflation



  

Suppose we invited the same friends to a birthday party each year for four years and purchased one giant pizza each year. We notice that although the giant size pizza doesnt change from year to year, it costs $1 more each year. The pie didnt change, but the dollar value (price) of the pie did If we want to compare GDP from year to year, we need to get rid of the inflation (price) effect!

Macroeconomic Indicators

Computing Real GDP

2004
Nominal GDP (in billions) Change in Nominal GDP Change in Price Level, 2004 to 2005 Real GDP in 2004 dollars Change in Real GDP

Qtr 2, 2005 $12,378 $644 1.5%

$11,734

$11,734

$12,195 $461

Macroeconomic Indicators

Computing Real GDP

The general formula for computing real GDP is: Real GDP in year t = Nominal GDP in year t Price Index Real GDP in 2nd Qtr, 2005 = $12,378 = $12,195 1.015

Macroeconomic Indicators

GDP & the GDP Deflator

To correct Nominal GDP for price increases from one year to the next, we must calculate real GDP using a Price Index. For GDP price adjustments, this price index is called the GDP Deflator and is calculated quarterly by the Department of Commerce. A price index is an index number that shows how the average prices of goods change over time. Based on percentage change from a base year

Macroeconomic Indicators Macroeconomic Indicators

GDP and Real GDP(in 1992Dollars), 1960-2000

10,000 9,500 9,000 8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1960 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 2000 GDP Base year = 1992 Real GDP Real GDP GDP

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Macroeconomic Indicators

International Comparisons of GDP

International Comparisons of GDP are difficult for a number of reasons: 1. Different countries use different national income accounting systems 2. International exchange rates into dollars fluctuate 3. Data from other countries may be unreliable

Macroeconomic Indicators

Trillion Dollar Economies, 2000

10 9. 9

1.

U. .

Fr nc

rit in

It l

r zil*

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.



1.

1.

. .1 1.1 1.0 in

Macroeconomic Indicators

Per Capita GDP

Per Capita GDP calculations attempt to give us additional information about how we are doing as an economy. Per Capita GDP calculations may be a better measure of the standard of living.

For citizens living in the same country over time For comparing standards of living between citizens of different countries

Macroeconomic Indicators

Per Capita Nominal GDP

GDP 2005 = -----------------------------Population 2005
$12,378,000,000,000 297,000,000

Per capita GDP 2005

Per capita GDP 2005 = -------------------------------Per capita GDP 2005 = $41,677

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Macroeconomic Indicators

Per Capita Real GDP

To compare per capita GDP in one year with that of another year we have to correct for inflation. In other words, we really need to revise our formula

Real GDP Per capita real GDP = -------------------------------Population

Macroeconomic Indicators

Per Capita GDP of the 10 Leading nations, 2000

$43,570 $40,080 40,000 34,330 30,000 $33,260 $32,380 $30,060

$29,340 $26,570 $25,380 $24,780

20,000

10,000

0 Luxembourg Switz rl n Norway Den rk J n Sing United States Ger any re Belgi Net erlan s

International comparisons for per capita GDP are at least somewhat suspect because of varying national income accounting systems as well as fluctuations of foreign exchange rates