Macroeconomics Overview

Macroeconomics

• Study of the economy as a whole
• GNP: Income earned by Americans in the U.S. and abroad
• GNP^US = GDP^US = [AI - FI]
  • AI = income earned by Americans abroad
  • FI = income earned by foreigners in the U.S.
  • If [AI - FI] > 0, then GNP > GDP (true for the U.S.)
  • If [AI - FI] < 0, then GNP < GDP
• GDP: Amount of wealth accumulated through the production of goods and services in one fiscal year
• GDP = (P₁*Q₁) + (P₂*Q₂) + ... + (P_x*Q_x)
  • P = price
  • Q = quantity of goods

GDP Definition

• Market value of all final goods and services produced within a country in a given time period
• Measured in the same units (e.g., dollars in the U.S.)
• Excludes items without market values (e.g., black market goods, homemade items)
• Final goods: Intended for the end user
• Intermediate goods: Used to create final goods; their value is already included in the final good's value
• Includes tangible and intangible goods
• Measures goods produced currently, not in the past
• Usually measured annually or quarterly (3 months)

Income Equals Expenditure

• GDP measures total expenditure on goods and services within a country's borders
• Suggests economic health, but doesn't indicate distribution of wealth across demographics

Circular Flow Diagram

• Simple model of macroeconomics
• Illustrates GDP as spending, income, revenue, and factor payments
• Shows the relationship between households and firms in an economy
• Factors of production include: labor, land, capital, and natural resources/factors.

Day 2 - Consumption and Investment

• Consumption (C): Spending by households on goods and services (durable and non-durable)
  • Includes rent payments for renters, imputed rental value for homeowners
• Investment (I): Spending on goods used to produce more goods
  • Does not include financial assets' purchases like stocks or bonds
  • Includes spending on new homes (residential investment)

Day 3 - Government Purchases, Net Exports, and GDP Components

• Government Purchases (G): Government's spending on goods and services (federal, state, local)
• Net Exports (NX) = exports (spending on domestic goods by foreigners) - imports (spending on foreign goods by domestic consumers)
• NX > 0 = trade surplus
• NX < 0 = trade deficit
• GDP components:
  • Y = C + I + G + NX (GDP = Consumption + Investment + Government Purchases + Net Exports)

This quiz covers essential concepts in macroeconomics, focusing on GNP and GDP. It examines the definitions, calculations, and distinctions between GNP and GDP, including their implications for measuring economic performance. Test your understanding of these fundamental economic indicators.