Macroeconomics

Lecture 3

Measuring a Nations’s Income GDP

Questions?

1. Name the six types of capital 2. What type of capital is water? 3. What were the two inventions the Wright Brothers developed? 4. What is capital? 5. Are entrepreneurs the same thing as inventors? 6. Name two elements of cultural capital. 7. What incentivized the development of kerosene? 8. What is horizontal fracking? 9. What type of capital are you developing when you go to college? 9. What type of capital are you developing when you write a book? 10. If you want to change someone's economic system, what should you change?

11. What does GDP stand for? 12. What is the definition of GDP? 13. What is GDP per capita?

StudentIntroductions

1978China Changed Worldview

Deng Xiaoping

Worldview

Political

Legal

Economic

Free to Trade

GDP Per

Capita

Saudi Arabia $25,000

India $1,500Pakistan $1,261

Bangladesh $800

16.7 times more 19.8 times more 31.2 times more

Science

HardSoft

Most people

Most of the time

Economics is a Soft Science

GDPGross Domestic Product

The market value of all final goods and services produced in a country in

a given time

GDPHow much stuff a

country makes

GDP Per CapitaGDP Per Person

Average GDP

Market ValueWhat something

would sell for

Market ValueOne Apple

plusOne Orange

= Three Dollars

AllEverything except...

Stuff you don’t sell

FinalIntermediate

Final

Final

Intermediate

Goods and Services

Goods

Services

ProducedNew Stuff

Does not include the sale of used goods

Within a Country

In a given period of timeYear Y/Y

Quarter Q/QAnnualized: Q x 4

PercentageChange

new number - old numberold number

This Year - Last YearLast Year

This Year = 75Last Year = 60Percentage Change?

75 - 6060

1560

.25 or 25%

How do you calculate

GDP?

GDP =C = ConsumptionI = InvestmentG = GovernmentX = ExportsM = Imports

GDP =C + I + G + (X - M)

ConsumptionSpending by

households on goods and services, except new housing

InvestmentSpending on capital

equipment, inventories, and structures, including new

housing

GovernmentSpending on goods and services from

local, state, and federal governments.

Net ExportsExports minus

imports

Net ExportsForeigners buying

exports minus domestic residents

buying foreign goods

What is GDP?C = 105I = 40G = 25X = 30M = 20

What is GDP?C = 105I = 40G = 25E = 30I = 20

GDP= C + I + G + (X - M)= 105 + 40 + 25 +(30-20)= 105 + 40 + 25 +10= 180

GDP per Person

GDP per CapitaAverage GDP per

person

GDP $75 trillion

Population 7.5 billion

GDP Per Capita $10,000

GDP $18 trillion

Population 318 million

GDP Per Capita $56,600

United States

GDP $11 trillion

Population 1.4 billion

GDP Per Capita $7,857

China

https://fred.stlouisfed.org

Public Data Explorer

Intellectual

Financial Physical

Human

Culture

Entrepreneur

trust knowledge skills personality health relationships

natural resources time buildings equipmentthings than make things

money and risksavers and borrowers time is money

(1+r)n

insurance   limited liability corporations

ideas technologymethods

Cultural Capital

Determines the relationship of

entrepreneurs to capital

Human Capital

I look for three things in hiring people.

The first is personal integrity, the second is

intelligence, and the third is a high energy level.

But of you don’t have the first, the other two will kill

you.

- Warren Buffett, CEO, Berkshire Hathaway

Integrity Competence

Trust

Trust Knowledge and Skills Health and Nutrition Social Relationships

Human Capital