Lessons 1&2 GDP
Gross Domestic Product
Table of Contents
1. Difference between Micro and Macro ...................................................................................................2
Microeconomics ................................................................................................................................................ 2
Macroeconomics ............................................................................................................................................... 2
Macroeconomic Goals ....................................................................................................................................... 2
Economic Indicators (Examples) ........................................................................................................................ 2
Welfare Comparisons (Examples) ...................................................................................................................... 3
Income and Life Expectancy .............................................................................................................................. 3
2. GDP & Circular Flow Model ...................................................................................................................3
GDP ................................................................................................................................................................... 3
Circular Flow Model .......................................................................................................................................... 4
Three Ways of Measuring GDP ......................................................................................................................... 4
The Expenditure Approach ................................................................................................................................ 4
The Income Approach........................................................................................................................................ 6
The ProducIon Approach .................................................................................................................................. 7
3. The Limits of GDP as an Indicator of Wealth ..........................................................................................7
Exclusion from GDP ........................................................................................................................................... 7
Welfare IndicaIon ............................................................................................................................................. 8
4. Circular Flow Model (Extended) ............................................................................................................8
NaIonal Income IdenIIes / Sectoral Balances ................................................................................................. 9
5. Consumer Price Index and InflaLon ..................................................................................................... 10
Market Basket and CalculaIon of CPI ............................................................................................................. 10
Infla%on in 2022 ......................................................................................................................................... 11
Real vs. Nominal GDP and GDP Deflator ......................................................................................................... 12
, Lessons 1&2 GDP
1. Difference between Micro and Macro
Microeconomics
- micro means small; microeconomics is the study of small economic units
o consumer decision-making and utility maximization
o firm production and profit maximization
o individual market equilibrium
o effects of government regulation on individual markets
o externalities
- decisions that people and businesses make regarding the allocation of
resources
- the best way to overcome shortages is a high price
- reduces demand and increases supply
Macroeconomics
- big picture
- focus on aggregate production, spending of consumers, government, and
foreigners (exports)
Macroeconomic Goals
The goals include justice, peace, national security, liberty, and general welfare.
Economic Indicators (Examples)
- central government debt: when debt increases, growth slows
- GDP growth: indicates the general health of the economy
- unemployment total: the economy is in poor shape and jobs are scarce, the
unemployment rate rises
- GDP/capita: developing countries have higher rates than rich countries
Gross Domestic Product
Table of Contents
1. Difference between Micro and Macro ...................................................................................................2
Microeconomics ................................................................................................................................................ 2
Macroeconomics ............................................................................................................................................... 2
Macroeconomic Goals ....................................................................................................................................... 2
Economic Indicators (Examples) ........................................................................................................................ 2
Welfare Comparisons (Examples) ...................................................................................................................... 3
Income and Life Expectancy .............................................................................................................................. 3
2. GDP & Circular Flow Model ...................................................................................................................3
GDP ................................................................................................................................................................... 3
Circular Flow Model .......................................................................................................................................... 4
Three Ways of Measuring GDP ......................................................................................................................... 4
The Expenditure Approach ................................................................................................................................ 4
The Income Approach........................................................................................................................................ 6
The ProducIon Approach .................................................................................................................................. 7
3. The Limits of GDP as an Indicator of Wealth ..........................................................................................7
Exclusion from GDP ........................................................................................................................................... 7
Welfare IndicaIon ............................................................................................................................................. 8
4. Circular Flow Model (Extended) ............................................................................................................8
NaIonal Income IdenIIes / Sectoral Balances ................................................................................................. 9
5. Consumer Price Index and InflaLon ..................................................................................................... 10
Market Basket and CalculaIon of CPI ............................................................................................................. 10
Infla%on in 2022 ......................................................................................................................................... 11
Real vs. Nominal GDP and GDP Deflator ......................................................................................................... 12
, Lessons 1&2 GDP
1. Difference between Micro and Macro
Microeconomics
- micro means small; microeconomics is the study of small economic units
o consumer decision-making and utility maximization
o firm production and profit maximization
o individual market equilibrium
o effects of government regulation on individual markets
o externalities
- decisions that people and businesses make regarding the allocation of
resources
- the best way to overcome shortages is a high price
- reduces demand and increases supply
Macroeconomics
- big picture
- focus on aggregate production, spending of consumers, government, and
foreigners (exports)
Macroeconomic Goals
The goals include justice, peace, national security, liberty, and general welfare.
Economic Indicators (Examples)
- central government debt: when debt increases, growth slows
- GDP growth: indicates the general health of the economy
- unemployment total: the economy is in poor shape and jobs are scarce, the
unemployment rate rises
- GDP/capita: developing countries have higher rates than rich countries
