Intro to Macroeconomics & Growth

1. INTRODUCTION TO
MACROECONOMICS

2. MACROECONOMICS:
The branch of Economics dealing with the
performance, structure, behavior, and decision-making of
an economy as a whole, rather than individual markets.
(This includes regional, national, and global economies).

3. AGGREGATE:
A whole formed by combining many separate units
or items. The “aggregate economy” is the product of
the combination of all the decision-making done by
individual actors in the world.
Individuals
Firms
Local Gov.
Households
National Gov.
Global Organizations

4. 3 GOALS OF
MACROECONOMICS:
1. Economic Growth
2. Full Employment
3. Economic Stability

5. We begin with goal #1:
ECONOMIC
GROWTH

6. GROWTH HISTORY:
Economies did not grow at a meaningful rate until the
1800s during the Industrial Revolution.
Economies in leading nations have grown at about 2%
a year for the last two centuries. (A 2% growth rate
will double the size of an economy in 36 years!)

7. GROWTH RATE

8. GROWTH:
Macroeconomics is all about measuring economic
growth. But how should it be measured?
By the amount of money
being spent every year?
By the amount of money
being made every year?
This is called total
expenditures.
This is called total
revenues.
In a given economy, total revenues and total
expenditures are always about the same. Every
transaction has a buyer and seller.

9. GROWTH:
Macroeconomics is all about measuring economic
growth. But how should it be measured?
Always remember that there is
no measure of ALL economic
activity, and the measures we do use
(like GDP) are inaccurate. GDP is a
simplification of massive amounts of
information.

10. GDP:
GROSS DOMESTIC PRODUCT
The market value of all final goods and
services produced in an economy within a
given time period.
Normally, we focus on the economy of a country,
...and the length of one year.

11. GDP:
The market value of all final goods and services
produced in an economy within a given time period.
The current price
at which people
are buying/selling
goods and services.
If these bananas are
produced in Brazil
and sold at the
market price of $2,
we say that the
GDP of Brazil has
increased by $2.

12. GDP:
The market value of all final goods and services
produced in an economy within a given time period.
Includes everything produced in the
selected region EXCEPT:
• Illegal things (like drugs) being sold
in the “black market”
• Good and services produced AND
consumed within the same home.

13. GDP:
The market value of all final goods and services
produced in an economy within a given time period.
Final goods are ready for sale.
GDP does not include the value of
intermediate goods.
Intermediate goods are
unfinished goods, or
goods used as inputs in
the production of a
more final product.

14. Intermediate goods...
Intermediate goods are unfinished goods, or goods used
as inputs in the production of a more final product.
Whether or not something is called an “intermediate
good” depends on its final destination.
If pencil lead is produced as a
component of wooden pencils, it is
an intermediate good.
If pencil lead is produced
to be sold as pencil lead,
it is a final good.

15. Intermediate goods...
When making blue jeans, there are many inputs to
production, including dye, thread, cloth, and labor. The
value of these things is not included in GDP. Only the
market value of the final pair of blue jeans becomes part
of the GDP total.
* Screenshot & example from Khan Academy!

16. GDP:
The market value of all final goods and services
produced in an economy within a given time period.
GDP includes the market value of all
items produced, whether they are sold
or not!

17. GDP:
The market value of all final goods and services
produced in an economy within a given time period.
GDP is calculated by location. If people in
South Korea own factories in other countries,
the value of the goods/services produced
there are NOT included in South Korean GDP.
Likewise, if foreigners living in South Korea
produce goods/services here, this value IS
included in GDP.

18. “REAL” VS. “NOMINAL”
Real GDP: inflation has been subtracted from the
total GDP. This allows us to compare GDP from year
to year, and make a direct comparison between the
state of a country’s economy in the past and present.
(Inflation: increase in price of products over time. )
Nominal GDP: A gross domestic product
figure that has not been adjusted for
inflation. Sometimes called “current dollar
GDP.”

19. OTHER MEASURES OF
ECONOMIC GROWTH:
Per Capita GDP: A measure of the total output of a
country that takes the gross domestic product (GDP) and
divides it by the number of people in the country.
This measure allows
us to better compare
one country’s
growth to another’s.

20. OTHER MEASURES OF
ECONOMIC GROWTH:
Per Capita GDP: A measure of the total output of a
country that takes the gross domestic product (GDP) and
divides it by the number of people in the country.
Per Capita GDP
shows us how
productive the
workforce of a
country is...
Country A Country B
Total GDP: 100 Total GDP: 100
# of People: 23 # of People: 68
Per Capita
GDP: 4.3
Per Capita GDP:
1.5

21. OTHER MEASURES OF
ECONOMIC GROWTH:
Purchasing Power Parity measures the purchasing
power of one currency against another after taking the
exchange rate into account.
This measure is used to
determine the relative
value of different
currencies.

22. OTHER MEASURES OF
ECONOMIC GROWTH:
Purchasing Power Parity measures the purchasing
power of one currency against another after taking the
exchange rate into account.
The “Big Mac Index” is
used to measure the
PPP between nations
with the cost of a big
mac as the benchmark.

23. Big Mac
cost:
USD
vs.
other
world
currencies

24. OTHER MEASURES OF
ECONOMIC GROWTH:
Real Growth Rate is a measure of economic growth
from one period to another expressed as a percentage
and adjusted for inflation.
The “Big Mac Index” is
used to measure the
PPP between nations
with the cost of a big
mac as the benchmark.

25. Questions:
What problems do you think we face
when trying to calculate GDP?
What problems do you think we face
when we compare GDP of different
countries?