Week 1: Measuring macroeconomics performance - GDP
Economics
Macroeconomics: deals with the economy as a whole, or with the basic subdivisions or aggregates that make up the economy
Microeconomics
When is the economy performing well?
- Maintaining the real value of the currency
- Ensuring sustainable levels of public and foreign debt
- Avoiding extremes of macroeconomic performance
- Balancing current expenditure against the need to provide resources for the future
- Rising living standards
- Providing employment for all individuals seeking work
Gross Domestic Product (GDP)
The market value of the final goods and services produced in a country during a given period.
Short- run fluctuations in GDP are associated with the business cycle
Long- run growth in the GDP is associated with better living standards
Value- added method for GDP: Summing up the value added by each firm in the production process (p.13)
Measuring GDP
The expenditure method: GDP = Y = C + I + G + NX = Consumption expenditure + Investment + Government expenditure + Net exports
The income method: GDP = labor income + capital income from the production
Labor income: wages, salaries and self- employed income
Capital income: payments to physical capital, intangible capital and profits
Nominal vs Real GDP
Nominal: current production at current prices
Macro-economists are more interested in changes to the production level over time
Real GDP: current production at the base year price => measure the actual physical volume of production
GDP and economic well-being
GDP is not the same as economic well- being
Leisure time: are not priced in the market
Non- market economic activities: such as volunteer, babysitting or in some countries, people trade services with each others without exchanging money (they may grow their own foods)
Environmental quality and resource depletion
Quality of life: low crime rate, minimal traffic congestion, ...
Poverty and economic inequality: GDP tells no information about who gets to enjoy those goods and services because it focuses on the total of production rather than on the distribution of output
GDP is related to economic well- being
Availability of goods and services
Life expectancy (tuổi thọ)