Evaluating The Effectiveness Of Laptops In The Classroom
3.1 Intro To Macro And Measuring Gdp
1.
2. By the end of this first unit your should be
able to understand…
Circular flow diagram of an economy
1.
including households and firms
2. List the five main Macro Economic goals
3. Measure the value of economy using
Gross Domestic Product
3. Circular flow diagram helps us understand how the
economy works.
We can use the diagram to show the how
‘economic things’ move around.
Things that move around our economy are either
real or money flows. A money flow is usually in
exchange for a real flow.
Physical or Real flows: Money Flows:
4. Two central parts to the model are
households and producers
Households are:
Producers or firms are:
5. Consumption
Spending (C)
Goods and Services
Households Firms
Types of Resources
Income (Y)
7. Quick Test: Complete the
following table by indicating
which flows are
› Real flows
› Money flows
Flows Real or Money?
Consumer Goods
Salaries
Labour
Consumption expenditure
Profit
BK Whopper Burger
8. Quick Test: Using the concept of
money flows can you describe
the interdependence between
households and producers?
Interdependence: Individuals, groups and producers relying on each other to provide
what they are no longer able to produce for themselves.
Specialisation results in need for interdependence and a need for trade
9. Investment (I)
Financial Sector
Savings (s)
Consumption Spending (C)
Goods and Services
Firms
Households
Types of Resources
Income (Y)
10. Households
Savings Investment
Import Export
income Expenditure
Payments Receipts
Taxes Government
Firms Spending
withdrawals injections
11. Quick Test: Complete the following table by
indicating which flows are
› Savings (S) a withdrawal from circular flow
› Investment (I) an injection to circular flow
Flows S or I
Depositing money in the bank
Firm buys a new truck
Workers buying shares in the
company they work for
Increasing the capital goods
a firm has
Building a new factory
12. Explain using the model what the effect of
1.
increased consumer savings would have on
the circular flow model?
Explain using the model explain what the
2.
effect of an increase in direct income taxation
would have on two different sectors.
Explain using the model that effect of
3.
increased exports to Australia due to a free
trade deal would have on one other sector of
the economy.
Discuss as group but write into your book
13. Letter from Circular Flow
Diagram?
Unemployment benefit payment
Receipts from dairy product exports
Factory worker wages
Consumer make deposit in bank account
GST payments
Teacher salaries
Employees investing in own business
International students paying fees to NZ
universities.
15. M = Import Payments IT = Direct Income Taxation
X = Export Receipts G = Government Spending
Y = Compensation to Employees Tr = Transfer Payments
S = Private Savings T = Taxes on production
C = Final Household Consumption Spending I = Gross Fixed Capital Formation
16. Measuring Gross Domestic Product using basic expenditure approach
C + I + G + ( X – M) = GDP
75 + 26 + 20 + (41-39) = $123 billion
M = Import Payments IT = Direct Income Taxation
X = Export Receipts G = Government Spending
Y = Compensation to Employees Tr = Transfer Payments
S = Private Savings T = Taxes on production
C = Final Household Consumption Spending I = Gross Fixed Capital Formation
17.
18. M
G
Income
C
Expenditure
X
I
∆R
C + I + G + ΔR ( X – M) = GDP Expenditure Approach
Compensation of Employees + Gross Operating Surplus + (taxes – subsidies)
Income Approach
19. This is a way of measuring national income
by either the expenditure, incomes or
production approach.
GDP = C + I + G + ( X – M )
GDP per capita = GDP / population
GDP is also called Aggregate Demand
(AD) total demand in the whole economy
GDP nominal (per capita)
20. Investment is defined as “the addition of capital stocks
to the economy by firms”. Capital stocks are man
made products which produce other products,
factories, trucks, machinery.
› Replacement Investment – occurs when firms spend on capital
in order to maintain stocks of capital. e.g purchasing a new
computer to replace old one (depreciation)
› Induced capital – firms spending to increase their output and
productivity eg. Purchasing a new room of 20 computers to
increase productivity
Investment Productivity Output
Purchasing new capital Amount of output Will increase and
assets produced per worker average cost will fall
21. Current Prices - P Current Production
Nominal GDP
Year (Nominal Prices) Q
X =
1
Current Prices - P Current Production
Year Nominal GDP
X =
(Nominal Prices) Q
2
Current Production
Real Prices - P
Real GDP
Year Q
(Nominal - Inflation) X =
1
Real GDP is adjusted for the changes in prices and
reflects the true value of Gross Domestic Product
22. Overall prices in the market have increased,
rather than the price in one or two markets.
The average of all prices has increased.
Inflation Deflation
A rise in the general A fall in the general level
level of prices overtime of prices overtime
Disinflation
Occurs where the rate of inflation is falling. Price level
is rising but by smaller amounts than before
23. Inflation
Deflation +
Disinflation
Inflation
Disinflation
Percentage Time
change in
the price
level
Deflation
-
24. A simple index showing the change in prices.
2004 2005 2006
Pie 2.00 2.00 2.50
Custard Square 1.00 1.50 1.50
Current nominal expenditure
Juice 0.80 0.80 1.20 INDEX = X 1000
Base year nominal expenditure
Moosie 0.80 0.80 0.90
Total Expenditure
Index Number 1000
Total Expenditure 2005 5.10
Index for 2005 = = X 1000 = 1108
Total Expenditure 2004 4.60
25. A simple index showing the change in prices.
2004 2005 2006
Pie 2.00 2.00 2.50
Wedges 1.00 1.50 1.50
Current nominal expenditure
Juice 0.80 0.80 1.20 INDEX = X 1000
Base year nominal expenditure
Lollies 0.80 0.80 0.90
Total Expenditure 4.60 5.10 6.10
Index Number 1000 1108 1326
Total Expenditure 2005 5.10
Index for 2005 = = X 1000 = 1108
Total Expenditure 2004 4.60
26. A simple index showing the change in prices.
2004 2005 2006
Index Number 1000 1108 1326
Inflation -
the average price level has
increased by ____% between 2005
and 2006
2006 Difference between index numbers 1326 - 1108
= X 100 = 19.6 %
Inflation =
Previous index number 1108
Rate
28. Injections Withdrawals
Money flows which increase Money flows which decrease
the level of economic activity the flow of economic activity
Expansion, Growth, Boom Contraction, Less Growth,
Recession
X M
G S
I T
29.
30.
31.
32.
Good Points Negative Points
Simple easy measure Only includes activity
of economic activity which is paid for or
earns and income.
Comparable,
objective data that No volunteer work
can be compared In countries with high
between countries tax rates true level of
economic activity is
perhaps
underestimated
Does not consider the
wealth distribution
33. What two money flows are considered
1.
withdrawals from the circular flow model
2. What are two flows are considered injections
to the circular flow model?
3. What are two money flows related to the
Government Sector?
4. What does GNP stand for
5. What do societies have to choose between
investment and consumption?
6. What is the formula for calculating GDP using
the expenditure approach?
7. What do the letters AD stand for?
8. If injections are greater than withdrawals does
the economy grow or shrink?
9. Explain the affect interest rates has on
household savings?
10. In which month is Mr Mc born?
