Chapter 12: Macroeconomic PerformanceMacroeconomics Branch of economics that deals with the economy as a whole, using aggregate measures of output, income, prices and employment – Micro vs Macro – 3 main goals of macroeconomics 1. Stable prices 2. Low unemployment 3. High and sustained economic growth.
12-1: Measuring the Nation’s Output and Income – Gross Domestic Product GDP • Comprehensive measure of national output • Total dollar value of all final goods, services and structures produced within a country’s national borders within a 12 month period – Intermediate products are excluded – Secondhand sales are excluded – Nonmarket transactions are excluded » Services you provide yourself » Barter transactions – Underground economic activities are excluded » Can be illegal activities such as gambling, drugs, smuggling, prostitution, etc. » Can be legal but involve cash sales so they are hard to track such as flea markets, garage sales, bake sales, babysitting
• Advantages and Limitations • Simple to understand, but • Tells us nothing about the composition of output • Tells us little about the impact of production on quality of life. • Some GDP is produced to control activities that give us little utility or satisfaction. • Still our best measure of overall economic performance and well-being because it is a measure of the voluntary transactions that take place in the market.
Other key definitions (page 324)1. Gross national product (GNP) Total dollar value of all goods and services produced in one year with labor supplied by a country’s residents, regardless of where production takes place2. Net national product (NNP) GNP minus depreciation3. National income (NI) Income that is left after all taxes are subtracted from NNP4. Personal income (PI) Income going to consumers before individual income taxes are subtracted5. Disposal personal income (DPI) Total income the consumer sector has after personal income taxesCircular Flow of Economic Activity