Economic Well Being.pptVIP

Economic Well Being Agec 217, Summer 2007 Economic Well Being Macroeconomics The study of the economy as a whole Circular Flow Diagram (Mankiw) Copyright ? 2004 South-Western Spending Goods and services bought Revenue Goods and services sold Labor, land, and capital Income = Flow of inputs and outputs = Flow of dollars Factors of production Wages, rent, and profit FIRMS Produce and sell goods and services Hire and use factors of production Buy and consume goods and services Own and sell factors of production HOUSEHOLDS Households sell Firms buy MARKETS FOR FACTORS OF PRODUCTION Firms sell Households buy MARKETS FOR GOODS AND SERVICES Economic Well Being Macroeconomic Indicators Employment and Unemployment Income Wealth Inflation Stock market indices Interest rates Retirement solvency Output (GDP) Economic Well Being Economic Well Being Gross Domestic Product (GDP) The market value of all final goods and services produced within a country in a given period of time Final goods (intermediate goods not included) Produced within borders, by citizens or foreigners Time period: typically one year GDP Gross Domestic Product = C + I + G + NX C ? Consumption I ? Investment G ? Government Spending NX ? Net Exports Net Exports = Exports - Imports GDP Per capita GDP Gross Domestic Product per person in a country Nominal GDP Uses prices in the year of the measurement Real GDP Uses prices for a “base” year to enable year to year comparisons GDP Values (US, 2001) Total in Trillions of Dollars Percent of Total Consumption (C) $7.0 69% Investment (I) $1.6 16% Government Purchases (G) $1.9 18% Net Exports (NX) -$0.3 -3% Total $10.1 100% Historical GDP GDP Measured Assume a diet of Pizza and Soda 2005: 500 pizza slices and 300 sodas Prices: pizza = $1.00 and soda = $0.50 2006: 550 pizza slices and 330 sodas Prices: pizza = $1.10 and soda = $1.00 GDP Measured Nominal GDP’s 2005 500 * $1.00 + 300 * $0.50 = $650 2006 550 * $