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Understanding Macroeconomics: GDP, Inflation, Unemployment, and Economic Health

This overview explores key macroeconomic concepts such as GDP, inflation, and unemployment that define the health of an economy. Gross Domestic Product (GDP) is a primary measure, indicating the total value of goods and services produced within a country's borders in a year. It helps identify economic growth and recessions while considering consumer, government, business, and foreign sector transactions. Additionally, metrics like the Consumer Price Index (CPI) and Producer Price Index (PPI) provide insights into inflation, impacting overall economic stability.

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Understanding Macroeconomics: GDP, Inflation, Unemployment, and Economic Health

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  1. Macroeconomics GDP and the Overall Health of the Economy

  2. Macroeconomics Overall economy GDP Inflation Unemployment Recessions Expansion, Growth Aggregate Supply/Demand Microeconomics Individual topics Business types Market structures Cost, revenue, profit Specific products Supply/Demand Pricing Macro vs. Micro

  3. Macro or Micro? • Jobless Rate Actually Stands at 11.5% • US Fiscal Path Unsustainable • AIG in $15.5 billion unit sale to MetLife • GM offers 661 dealers a second chance • New credit card rules' double standard • IPhone credit card swipe war heats up • Economist: No Risk for Inflation

  4. Macroeconomic Measurements • How do we know how healthy a country’s economy is? MEASURE IT • Major measurements: • GDP: Gross Domestic Product (output) • CPI: Consumer Price Index (inflation) • Unemployment rate

  5. GDP • Primary measurement of economy’s health • DOLLAR AMOUNT of all FINAL goods and services produced in a country’s BORDERS in a YEAR • Used to identify growth, recessions, depressions • Calculated by US Commerce Department

  6. What’s not included? • Intermediate products • The steel, tires, etc. in a new car • (Counted: You buy new tires for your car) • Secondhand sales • A used car • (Counted: The commission earned by salesman) • Nonmarket transactions • The chores you don’t get paid for at home • Underground economy • A sale of a stolen car

  7. What’s included? • Consumer sector (C) purchases • Government sector (G) purchases • Business investment (I) purchases • Foreign sector (Exports-Imports) (X-M) • GDP= C + G + I + (X-M)

  8. Problems with Using Prices? • What about inflation? • Need for a Price Index • Base Year (starting point) = 100% • Market basket • If year two is 150, then inflation rate is 50%

  9. Important Price Indices • Consumer Price Index (CPI) • 80,000 items in 362 categories • Bureau of Labor Statistics • Producer Price Index (PPI) • 100,000 input commodities • Implicit GDP Price Deflator • Turns Current GDP into Real GDP • Real (adjusted for inflation)

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