Intro to Macroeconomics

1.

INTRO TO MACROECONOMICS
MEASURES OF GDP AND
ECONOMIC GROWTH
CHAPTERS 13-14
By: Shomurodov T.B.

2.

3.

4.

WHAT DOES THE GROSS DOMESTIC
PRODUCT (GDP) SHOW ABOUT THE
NATION’S ECONOMY?
The most important data economists analyze is gross domestic
product (GDP), which is the market value of all final goods and
services produced within a country’s borders in a given year.

5.

6.

WHAT IS THE GDP FORMULA?
1. Expenditure Approach
The expenditure approach is the most commonly used GDP
formula, which is based on the money spent by various groups
that participate in the economy.
GDP = C + G + I + NX
C = consumption or all private consumer spending within a
country’s economy, including, durable goods (items with a
lifespan greater than three years), non-durable goods (food &
clothing), and services.
G = total government expenditures, including salaries of
government employees, road construction/repair, public
schools, and military expenditure.
I = sum of a country’s investments spent on capital
equipment, inventories, and housing.
NX = net exports or a country’s total exports less total
imports.

7.

INCOME APPROACH
This GDP formula takes the total income generated by the goods and
services produced.
GDP = Total National Income + Sales Taxes + Depreciation + Net
Foreign Factor Income
National Income – the sum of all wages, rent, interest,
and profits.
Sales Taxes – consumer taxes imposed by the government on the
sales of goods and services.
Depreciation – cost allocated to a tangible asset over its useful life.
Net Foreign Factor Income – the difference between the total
income that a country’s citizens and companies generate in foreign
countries, versus the total income foreign citizens and companies
generate in the domestic country.
Total

8.

OUTPUT APPROACH
The output approach to calculate GDP sums the
gross value added of various sectors, plus taxes and
less subsidies on products.
The output of the economy is measured using gross
value added. Gross value added is defined as the
value of all newly generated goods and services less
the value of all goods and services consumed in their
creation; the depreciation of fixed assets is not
included.
When calculating value added, output is valued at
basic prices and intermediate consumption at
purchasers' prices. Taxes less subsidies on products
have to be added to value added to obtain GDP at
market prices.

9.

What is counted in GDP?
Final goods and services
Intermediate goods that have not yet been used
in final goods and services.
Raw materials that have been produced, but not
yet used in the production of intermediate or
final goods.
What is not included in GDP?
Intermediate goods that have been turned into
final goods and services (e.g. tires on a new truck)
Used goods
Transfer payments
Non-market activities
Illegal goods

10.

WHAT ARE THE TYPES OF GDP?
Nominal GDP – the total value of all goods and services produced at
current market prices. This includes all the changes in market prices
during the current year due to inflation or deflation.
Real GDP – the sum of all goods and services produced at constant
prices. The prices used in determining the Gross Domestic Product
are based on a certain base year or the previous year. This provides a
more accurate account of economic growth, as it is already an
inflation-adjusted measurement, meaning the effects of inflation are
taken out.
Actual GDP – real-time measurement of all outputs at any interval
or any given time. It demonstrates the existing state of business of
the economy.
Potential GDP – ideal economic condition with 100% employment
across all sectors, steady currency, and stable product prices.

11.

12.

GROSS NATIONALPRODUCT (GNP)
GNP measures the value of goods and services produced
by only a country's citizens but both domestically and
abroad.

13.

14.

THE PAASCHE INDEX
The Paasche Price Index is a price index used
to measure the general price level and cost of
living
in
the
economy
and
to
calculate inflation. The index commonly uses a
base year of 100, with periods of higher price
levels shown by an index greater than 100 and
periods of lower price levels by indexes lower
than 100.

15.

LASPEYRES INDEX
The
Laspeyres Price Index is a consumer price
index used to measure the change in the prices of
a basket of goods and services relative to a
specified base period weighting. Developed by
German economist Etienne Laspeyres, the
Laspeyres Price Index is also called the base year
quantity weighted method.

16.

17.

18.

DIFFERENT PURPOSES OF EACH INDEX
The Laspeyres index, in which the quantities are
from the base period, indicates how much an
individual's income would have to increase to
offset price increases so that the basket's utility
remains the same.
By contrast, the Paasche index, which uses
current quantities, is a measure of how much
income an individual would have to lose at the
base price level to equal the effect on her utility
of the inflation between the base and current
periods.

19.

DOWNSIDES OF TH E INDIXES
The main downside to these indices is the fact
that they do not take into effect substitution
effects.
Laspeyres index uses base period quantities, it
tends to overestimate inflation by assuming that
individuals’ income expense is still distributed in
the same way.
The opposite is true of the Paasche index:
because it uses current period quantities, it
underestimates inflation.

20.

FISHER PRICE INDEX
The Fisher Price Index, also
called the Fisher’s Ideal
Price Index, is a consumer
price index (CPI) used to
measure the price level of
goods and services over a
given period. The Fisher
Price Index is a geometric
average of the Laspeyres
Price Index and the Paasche
Price Index. It is deemed the
“ideal” price index as it
corrects the positive price
bias in the Laspeyres Price
Index and the negative price
bias in the Paasche Price
Index.

21.

PURCHASING POWER PARITY
Purchasing
power parity (PPP) is a
measurement of prices in different countries that
uses the prices of specific goods to compare the
absolute
purchasing
power
of
the
countries' currencies. In many cases, PPP produces
an inflation rate that is equal to the price of
the basket of goods at one location divided by the
price of the basket of goods at a different location.
The PPP inflation and exchange rate may differ
from the market exchange rate because of poverty,
tariffs, and other transaction costs.

22.

https://data.oecd.org/conversion/purchasing-power-paritiesppp.htm

23.

CONSUMER PRICE INDEX(CPI)
A consumer price index measures changes in
the price level of a weighted average market
basket of consumer goods and services purchased
by households.

24.

25.

26.

27.

The end