1. Macroeconomic
Indicators

2. The Flow of Goods and Services
• A simple economic model illustrating the flow of goods and services though
the economy. In the model, producers are termed as "firms"
while consumers are referred to as "households." Firms supply goods and
services while households consume these goods and services. Factors of
production (land, labor, capital) are supplied by the household to firms and
the firms convert these into finished products for household consumption.

3. The Circular Flow Diagram

4. Indicators of a Country’s Aggregate Output
• The Gross Domestic Product (GDP) is the godfather of the indicator
world. As an aggregate measure of total economic production for a
country, GDP represents the market value of all goods and services
produced by the economy during the period measured, including personal
consumption, government purchases, private inventories, paid-in
construction costs and the foreign trade balance (exports are
added, imports are subtracted).

5. • The GDP is an extremely comprehensive and detailed report.
• the GDP figures as reported to investors are already adjusted for inflation. In
other words, if the gross GDP was calculated to be 6% higher than the
previous year, but inflation measured 2% over the same period, GDP growth
would be reported as 4%, or the net growth over the period.
• There are those who insist that advanced economies should aim to have 0%
inflation, or in other words, stable prices. The general consensus, however, is
that a little inflation is actually a good thing.

6. The two aspects of the definition of GDP
• Why do we use the market value?
• What do we mean by final goods?

7. GDP is presented using market value of production because the economy
produces different types of goods which cannot be directly added to each
other.
The use of market values provides GDP estimates that are easy for everyone to
interpret.

8. The calculation of GDP only includes final goods. These goods are purchased
not for the purpose of resale or producing other goods for further sale (i.e.,
intermediate goods ) but for consumption.
In the computation of GDP, we do not include the purchase of intermediate
goods in order to avoid double-counting.

9. Gross National Product
• Also known as Gross National Income (GNI). Is another indicator of
output.
• GNP is calculated as the sum of GDP and the Net Factor Income Abroad
(NFIA). NFIA, as applied to the Philippines, represents the difference
between the earnings of Filipinos from activities overseas and the earnings
of foreigners in the Philippines.

10. Table 10.1 GDP and GNP of the Philippines, 2007
Item
Gross Domestic Product
Net Factor Income from Abroad
Gross National Product
Source: NSCB (2008a)
Value (billion pesos)
6,648.25
601.08
7,249.33

11. Three Approaches of Measuring GDP:
1. THE EXPENDITURE APPROACH – the sum of the spending on
different final goods and services.
• GDP
+
=
total spending on good 1 + total spending on good 2 + total spending on good 3+ …
total spending on good n
2. THE INCOME APPROACH – the sum of the payments to the different
factors of production.
• GDP
=
wages + interest payment + rents + profits

12. 3. THE VALUE ADDED APPROACH – the sum of the value added of each
firm.
•
• GDP
Value Added – the difference between the sales of the firm and its spending
on goods produced by other firms.
=
value added of firm 1 + value added of firm 2 + value added of firm 3 + … + value
added of firm n

13. Equivalence of the Three Approaches
Value of Sales
2, 000
Costs of Production
Wages
200
Rent
200
Interest
200
Purchases from other firms
600
Profits
• Value Added = Sales – Purchases from other firms
= 2, 000 – 600
= 1, 400
800

14. • Notice that we will get the same value if we add up on the different sources
of “income.” That is,
Income = wages + rents + interest + profits
= 200 + 200 + 200 + 800
= 1, 400
• Since the income and expenditure approaches are equivalent, it follows that
the expenditure and value added approaches are also equivalent.

15. Item
in million pesos
as a percentage of GDP
Expenditure Approach
Household Final Consumption Expenditure
2,078,327
73.0
Government Final Consumption Expenditure
381,052
13.4
Capital Formation
511,055
18.0
Exports of Goods and Services
785,340
27.6
(883,749)
(31.0)
(25,636)
(.9)
2,846,389
100.0
Agriculture, Hunting, Forestry, and Fishing
284, 945
10.0
Industry
865,114
30.4
Services
1,696,330
59.6
Gross Domestic Product
2,846,389
100.0
Less: Imports of Goods and Services
Statistical Discrepancy
Gross Domestic Product
Value Added Approach

16. Using GDP or GNP to Gauge a Nation’s
Economic Health
• GNP at current prices or Nominal GNP – is calculated using the prices
that exist for the year it is computed.
• GNP at constant prices or Real GNP – is calculated by dividing the
nominal GNP by the GNP deflator and multiplying the result by 100. This
overcomes the weakness of nominal GNP by removing the impacts of price
changes.
• GNP deflator – measures the cost of a given bundle of goods in one year relative to
the cost of the same bundle of goods in the base year.
Real GNP = (Nominal GNP/GNP Deflator) x 100

17. Item
2005
2006
2007
GNP at Current Prices (million pesos)
5, 891, 183. 00
6, 532, 104. 00
7, 227, 312. 00
GNP at 1985 prices (million pesos)
1, 211, 452. 00
1, 276, 156. 00
1, 366, 493. 00
486. 29
511. 86
528. 89
85. 26
86. 97
88. 71
per capita GNP at Current Prices (in pesos)
69, 096. 68
75, 107. 55
81, 471. 22
per capita GNP at 1985 Prices (in pesos)
14, 208. 91
14, 673. 52
15, 404. 05
GNP deflator
Population (million persons)
Growth rates (in percent)
GNP at Current Prices
-
10.9
10.64
GNP at 1985 prices
-
5.34
7.08
GNP deflator
-
5.25
3.33
Population
-
2.00
2.00
per capita GNP at Current Prices
-
8.70
8.47
per capita GNP at Constant Prices
-
3.27
4.98

18. • per capita GNP at constant prices or Real GNP per capita – is
computed by dividing the real GNP by the population of the country.
• Conversion of country’s GNP into US dollars:
GNP in US dollars
=
GNP in local currency
/
Exchange rate

19. Measures of economic performance for selected countries, 2007
Item
GNP (in million US dollars)
Population (in millions)
GNP per capita (in US dollars)
India
Philippines
Lithuania
1, 069, 400
142, 600
33, 500
1, 123
88
3
950
1, 620
9, 920
In recent years, economists have recognized that making cross-country
comparisons requires an adjustment to GNP that goes beyond converting its
values to US dollars. The reason is that one dollar spent in one country may not
buy the same quantity of goods in another country. Another way of putting it is
that the price of a commodity in one country is not likely to be the same in
another.

20. • To adjust for price differences across countries, GNP measured at domestic currency is
divided by the so-called purchasing power parity exchange rate (PPP exchange rate)
• The result is called PPP adjusted GNP . This result would then be divided by the
population to get an estimate of PPP adjusted per capita GNP.
Per capita GNP of selected countries, 2007
Country
China
in US dollars
PPP Adjusted
2, 360
5, 370
38, 860
33, 820
India
950
2, 740
Japan
37, 670
34, 600
Lithuania
9, 920
17, 180
Philippines
1, 620
3, 730
Singapore
32, 470
48, 520
Thailand
3, 400
7, 880
Germany

21. LIMITATIONS OF GNP
1. The higher GNP estimates tend to be associated with improved standards
of living.
Example: GNP estimates are silent on the costs of achieving higher output.
2. GNP is also an imperfect measure of output.
 Imputing- refers to the process of approximating the values of certain activities.
Example: the calculation of payments for owner-occupied housing.
•
This procedure introduces measurement errors because the imputed value might be different from
the actual value.

22. • There are also activities for which markets exist but the transactions are not reported.
Example: Drug-trafficking and prostitution
• There are also situations in which the activities are legal and markets exist but the
transactions are not reported.
Example: Peddling and trading
 The underestimation of output resulting from illegal and unreported activities is large.

23. INFLATION- refers to the increase in the general price level(GP)
or prices as a whole.
Two measures of the inflation rate:
1.Headline inflation rate – uses the Consumer Price Index (CPI) as a measure of the general price level. This
is the traditional and most common index of inflation.
Formula:
CPI period t - CPI period t-1
Headline inflation rate =
CPI period t-1
2. Core inflation rate- uses a price index which excludes the prices of commodities that are deemed to be
volatile.

25. UNEMPLOYMENT -
implies that productive
resources are not being fully utilized in the economy.
• A person is considered unemployed if he/she is not a member of the labor
force.
The term labor force refers to people of a certain age (15 years and above in
the case of the Philippines) who are:
a. working or engaged in business, and
b. not working or engaged in business but are actively looking for work.

26. UNEMPLOYMENT RATE- an indicator that
measure the employment situation in our country.
• We calculate the unemployment rate (U) by dividing the number of
unemployed members of the labor force by the total labor force. The result
is then multiplied by 100 so that it can be expressed as a percentage:
Unemployed members of the labor force
U=
Total labor force

27.
Philippines
April 20131/
Population 15 years and over (in 000) 2/
64,028
62,842
Labor Force Participation Rate (%)
63.9
64.7
Employment Rate (%)
92.5
93.1
Unemployment Rate (%)
7.5
6.9
Underemployment Rate (%)
19.2
19.3
April 2012

29. UNDEREMPLOYMENT RATE- the portion of
employed individuals who want to work longer hours.
• This indicator is calculated using the formula below:
Underemployment Rate =
Number of people underemployed
Total employment