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Macroeconomic concerns

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  • 1. Macroeconomic Concerns Economic Growth Inflation Unemployment Mr. Rey Belen
  • 2. Economic GrowthO National Income and Product Accounts are an accounting system used to measure of aggregate economic activity.O The measure of aggregate output in the national income accounts its gross domestic product or GDP.
  • 3. Gross Domestic Product (GDP)3 ways to define GDP1. The value of the final goods and services produced in the economy during a given period2. The sum of value added in in the economy during a given period3. The sum of incomes in the economy during a given period.
  • 4. Economic Growth: GDPApproaches to measure GDP1. Expenditure approach, or GDP = C (consumption) + I (investment) + G (government spending) + NX (net exports or exports minus imports)2. Sectoral(producton) approach, or GDP = Agriculture + Industry + Services3. Income approach, or GDP = wages + profits + rents + interests payments.The first two are more common in the National Income Accounts(NIA) if the Philippines.
  • 5. Economic Growth: GDPExample, in 2003 (in thousands) Expenditure Approach Personal Consumption P2, 750, 853, 000 Government Consumption 488, 740, 000 Gross Domestic Capital Formation 776, 191, 000 Exports 1, 968, 534, 000 Imports 1, 989, 104, 000 Income Approach Compensation of employees 1, 028, 888, 000 Operating Surplus 2, 355, 748, 000 Depreciation 342, 364, 000 Indirect Taxes less subsidies 302, 654, 000 – 6, 960, 000 Production Approach Agriculture 631, 970, 000 Industry 1, 378, 870, 000 Services 2, 305, 562, 000
  • 6. Nominal and Real GDPO Nominal GDP is the sum of the quantities of final goods produced times their current price. O Nominal GDP increases overtime because: O The production of most goods increases overtime. O The prices of most goods also increases overtime. O Nominal GDP is also called peso GDP or GDP in current pesosO Real GDP is constructed as the sum of the quantities of final goods times constant (rather than current) prices. O Real GDP is also called GDP in terms of goods, GDP in constant pesos, GDP adjusted for inflation, or GDP in 1985 pesos (which is the benchmark for real GDP in the Philippines.
  • 7. Nominal and Real GDP Year Quantity Price of Nominal Real GDP of Motorbike GDP (in 2008 Motorbike s pesos) s2007 10 P 20, 000 P 200, 000 P 240, 0002008 12 P 24, 000 P 288, 000 P 288, 0002009 13 P 26, 000 P 338, 000 P 312, 000To construct the real GDP, multiply the number of motorbikes in each yearby a common price. Suppose we use the price of the motorbikes in 2008as the common price. This approach give us, in effect, real GDP in 2008pesos.
  • 8. Nominal and Real GDPO Real GDP per capita is the ratio of real GDP to the population of the country.O GDP growth equals: (Yt – Yt-1) Y t-1 GDP refers to the real GDP, where Yt denotes real GDP in year t and Yt-1 denotes the previous year. Periods of positive GDP growth are called expansions Periods of negative GDP growth are called contractions.
  • 9. A Typical Business Cycle:Expansion and ContractionO Expansion or Boom O The period in the business cycle from a through up to a peak, during which output and employment rise.O Contraction, Recession or slump O The period in the business cycle from a peak down to a through, during which output and employment fail.