Download Economic growth

Economic growth
Macroeconomics 1
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Fundamental macroeconomic
indicators
• Economic growth
• Unemployment
• Inflation
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Gross Domestic Product (GDP)
• GDP is the market value of the final goods and
services produced within a country in a given
time period (typically one year).
Gross National Product (GNP)
• GDP plus net income earned abroad.
• GNP = GDP + net income earned abroad
Net National Product (NNP)
• NNP = GNP – depreciation
• Depreciation is the estimate of the amount of
capital (invested in assets of the economy) that
will wear out or will be used up in producing
GNP.
National income (NI)
• NI = NNP – indirect taxes
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Economic growth
• GDP is also the most common measure of an
economy’s total output.
• Economic growth is sustained increases in the
real GDP of an economy over a long period of
time.
• Economic growth rate is the annual percentage
change of real GDP.
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Expanssion and recession
• Periods of positive real GDP growth are called
expansions.
• Periods of negative real GDP growth are called
recessions (more precisely – recession means
that real GDP falls within at least two succesive
quarters).
The Components of GDP
• GDP = C + I + G +X – Z = C + I + G + NX
• GDP = C + I + G +X - Z
• C - Consumption expenditures: purchases by
consumers
• I - Private investment expenditures: purchases by firms
• G - Government purchases: purchases by federal, state,
and local governments
• NX - Net exports: net purchases by the foreign sector
(domestic exports minus domestic imports)
• X – Export
• Z - Import
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Real GDP vs. nominal GDP
• Real GDP is the value of final goods and
services produced in a given year when valued at
the prices of a reference base year (GDP in
fixed prices).
• Nominal GDP is the value of final goods and
services produced in a given year when valued at
the prices of that year (GDP in current
prices).
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The virtue of real GDP
• By comparing the value of production in the two
years at the same prices, we reveal the change in
production.
• Changes in nominal GDP are driven not only by
changes in physical production but also by
changes in prices. Changes in real GDP are
driven solely by changes in physical production.
GDP per capita
• GDP per capita = the gross income received by
the average resident of a country
• GDP per capita = GDP / number of residents
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