Introduction to Agricultural and Natural Resources

Overview of MacroeconomicsFREC 150

Dr. Steven E. Hastings

Overview of Macroeconomics• Major Topics• Definition• Circular Flow of Income (Again)• Macroeconomic Indicators• National Income Accounts• Summary: Where are We Going?

– Macroeconomics – Stock Market – Food and Fiber System

Overview of Macroeconomics

• Macroeconomics focuses on the “Circular Flow of Income, Resources and Products” as a whole, not individual entities (firms, consumers, etc.)

• Macroeconomics focuses on broad aggregates such as GDP, unemployment and inflation. Penson et al. 2009

• “Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions.” http://en.wikipedia.org/wiki/Macroeconomics

Macroeconomics: How do we measure, analyze and influence this?

Figure 12.3 - Penson

Macroeconomic Indicators

• Many, many macroeconomic indicators (measures) exist – 1,000’s!

• Socioeconomic Indicators: – Population ( http://www.census.gov/– Income (www.census.gov)

• Economic Indicators: – unemployment rates

http://www.bls.gov/

– interest rateswww.bankrate.com

- stock prices WSJ, Market Data Center

- Consumer Price Index http://www.bls.gov/cpi/

- Consumer Confidence CCI, Wikipedia

National Income and Product Accounts

• A national accounting system (much like a business would use) started in the 1930’s (post-Depression) to measure and monitor the value of economic activity in the U. S. economy.

• Viewed the economy much like a business.– Focused on income, expenditures and products

produced. – Continually modified and improved.

National Income Acounts

• Most important measure - • Gross Domestic Product (GDP) – a single dollar

value of the total of all goods and services produced in the United States whether by domestic or foreign resources.

• A measure of growth in the economy and a basis for other measures.

Ways to measure GDP

• There are 2 ways to measure GDP – provides a system of “check and balances”

– Expenditure Method – looks at product markets - the sum of all sales of goods and services in the economy.

• GDP = Consumption + Investment + Gov’t Expenditures + (Exports – Imports)

Very famous equation!

United States’ GDP

– Income Method – looks at resource markets - the sum of all expenditures on resources in the economy.

• GDP = Employee compensation + Corporate profits + Proprietor's Income + Rental income + Net Interest

– Both way produce the same number!

Nominal vs. Real GDP

• National Accounts are measures in dollars, but the dollar “value” (the things that can be purchased with a dollar) changes – called, inflation or deflation.

• Thus, “nominal values” must be adjusted (usually, deflated) to determine “constant” or “real” values.

• “Constant” is outdated; government now used “Chained” – Concept is the same, adjust for inflation; methodology is different.– http://en.wikipedia.org/wiki/Chained_dollars

• Bottom line, it is important to distinguish between real and nominal values when making comparisons over time.

Examples of Inflation

<< 2004

UD Tuition and Fees – Fall 2011Source: UD Brochure , 2011

UD Tuition and Fees – Fall 1968Source: UD Undergraduate Catalog, 1968 - 1970

Keep in mind that the Minimum Wage was $1.15!

How much is U.S. GDP? Other Countries?

• Web Sites from the Reading List– Macroeconomic Analysis– Overview of the U. S. Economy: Perspective from

the BEA Accounts– ERS/USDA International Macroeconomic Data Set– List of Countries by GDP (nominal)

Introduction to Agricultural Economics, 6ePenson | Capps | Rosson | Woodward

Copyright © 2015, 2010 by Pearson Education, Inc.All Rights Reserved

As a point of reference, real GDP fell by 8.5%, 6.5% and 12.9% annually over the 1930–1932 period.

Figure 12–4

Related Measures in the National Income Accounts

• Basis for a series of related measures:• Gross National Product• Net National Product and Net National Income• Personal Income and Disposable Personal Income

• See the U.S. Statistical Abstract

Introduction to Agricultural Economics, 6ePenson | Capps | Rosson | Woodward

Copyright © 2015, 2010 by Pearson Education, Inc.All Rights Reserved

Table 12–2 GDP: What's In and What's Not

Issues with GDP

• Problems - depend on the purpose:• GDP includes:

• pollution control – pollute a river, clean it up and increase GDP!

• clean up from natural disaster - • war expenditures – go to war and increase GDP!

Issues with GDP

• GDP excludes:• leisure activities – a nice walk or bike ride! • volunteerism • income distribution considerations• private transactions (bartering)

• Read: GDP – The Measure and Mismeasure of the Economy• http://www.cbc.ca/money/story/2008/06/16/f-economy-

gdp.html

Summary

• Macroeconomic is concerned with the performance of our overall economy.

• Our economy is measured and monitored via a series of socioeconomic and economic indicators.

• Where are we going? – Macro> Stock Market> Food and Fiber System

Introduction to Agricultural Economics, 6ePenson | Capps | Rosson | Woodward

Copyright © 2015, 2010 by Pearson Education, Inc.All Rights Reserved

Introduction to Agricultural Economics, 6ePenson | Capps | Rosson | Woodward

Copyright © 2015, 2010 by Pearson Education, Inc.All Rights Reserved

We can measure macro economic activity in either resource markets or product markets. Result is the same…

Introduction to Agricultural Economics, 6ePenson | Capps | Rosson | Woodward

Copyright © 2015, 2010 by Pearson Education, Inc.All Rights Reserved

National income = GDP

Introduction to Agricultural Economics, 6ePenson | Capps | Rosson | Woodward

Copyright © 2015, 2010 by Pearson Education, Inc.All Rights Reserved

Measurement of Gross Domestic Product