MEASURING THE

ECONOMY

MACROECONOMICS
Macroeconomics is the branch of
economics which deals with the
study on how the whole economy
performs.
The total market value of all final
goods and services reflects the
performance of the economy.
This is measured in terms of GDP
and GNP.

SIMON KUZNETS
Simon Smith Kuznetswas
aRussian
AmericaneconomistatHarvard
Universitywho won the
1971Nobel Memorial Prize in
Economic Sciencesfor his
empirically founded
interpretation of economic
growth which has led to new and
deepened insight into the
economic and social structure
and process of development.

SIMON KUZNETS
Kuznets is credited with
revolutionizingeconometrics,
and this work is credited with
fueling the socalledKeynesian"revolution".
An important book of his
isNational Income and Its
Composition, 19191938.
Published in 1941, it contains a
historically significant work
onGross National Product.

THE GROSS DOMESTIC

PRODUCT
Gross Domestic Product (GDP) refers
to the market value of all final goods
and services produced domestically
in a given period of time.
Nominal GDP is the value (at
current price) of final goods and
services produced within a country
for a specific period of time.
Formula:
Nominal GDP = Price x quantity

THE GROSS DOMESTIC

PRODUCT
Real GDP is the value (at
constant price) of final goods
and services produced within a
country for a specific period of
time.
Formula:
Real GDP = Nominal GDP
Price Index

PRICE INDEX
The price index is the ratio of the price of
the current year and the price of the
base year multiplied by 100.
The base year is the point of reference
from which constant price of quantity
of goods and services are taken. This
is usually represented by a normal
economic condition
Formula:
Price Index = Price of the year
100
Current price of the year

HYPOTHETICAL DATA
FOR REAL GDP
Year

Price
Index

Nominal
GDP

Real
GDP

2005

100

2,250

2,250

2006

233

4,550

1,953

2007

333

6,250

1,877

2008

400

7,200

1,800

2009

500

8,250

1,650

APPROACHES TO GDP
ACCOUNTING
Industrial Origin Approach
or Production Approach
this approach sums up the
market value of the total
production of all major
economic sectors of the country.

REAL GDP IOA FOR

2010

Sector

Quarter
1st
Qtr

2nd
Qtr

3rd
Qtr

4th
Qtr

Agriculture, Fishery, and

Forestry

63,95 57,25 57,09 79,78

1
4
0
6

Industry

117,4 136,9 121,2 140,0

83
26
93
49

Service

178,9 190,5 187,7 206,0

69
05
54
93

Gross Domestic Product

360,4 384,6 366,1 425,9

03
85
37
28

EXPENDITURE
APPROACH
The expenditure approach
sums up the expenses of the
institutional sectors:
households, private
corporations, government
corporations, and the
general government.

Components of the
Expenditure
Approach
Consumption or Household Final
Consumption Expenditure (C).
This is the expenditure by
households on goods and
services
Investment or Gross Domestic
Capital Formation (I).
This is the expenditure by the
businesses.

Components of the
Expenditure Approach
Government Final Consumption
Expenditure (G). This is the
expenditure by the government.
Exports (X). These are the
expenditures on domestically
produced goods and services by
foreigners.
The value of exports is added in
the computation of GDP.

Components of the
Expenditure Approach
Imports (M). These are the
expenditures
on
foreign
goods
and
services
by
domestic residents.
The value of the imports is
deducted
in
the
computation of GDP.

GROSS NATIONAL
INCOME
The Gross National Income
(GNI) is the value of final
goods and services produced
domestically and abroad by
Filipino citizens.
It is previously known
Gross National Product.
Formula:

GNI = GDP Net Primary

as

NET PRIMARY
INCOME
Net Primary Income (NPI) is the
difference
between
inflows
and
outflows of income.
Inflows of income refer to the value
of
compensation
and
property
income that the Philippines receives
abroad.
Outflows of income represent the
value of compensation and property
income that is sent abroad.

BUSINESS CYCLE,
UNEMPLOYMENT &
INFLATION

Business Cycle
Periodic but irregular up-and-down movement in
economic activity, measured by fluctuations in
GDP and other variables.
Associated with larger business trends
Characterized by four phases
Recession
Recovery
Growth
Decline

STAGES OF
BUSINESS CYCLE

Growth or Prosperity
period of sustained expansion
Recession
period of reduced economic activity in which levels of
buying, selling, production, and unemployment
typically diminish
Decline or Depression
contraction or downturn, decreased levels of consumer
and reduced production by business
Recovery
upturn, economy troughs out and starts working its
way up to better financial footing

FACTORS THAT SHAPE

BUSINESS CYCLE
Volatility of Investment Spending
Investment spending is the most volatile
component of the aggregate or total
demand
Acceleration principle
Momentum
Where consumer confidence is high and
people adopt more free spending habits,
other customers are more likely to
increase their spending.

STAGES OF
BUSINESS CYCLE
Technological Innovations
may relate to production and use of a new
product or production of an existing product
using a new process
Variations in Inventories
expansion and contraction in the level of
inventories of goods kept by business
Inventories- stocks of goods firm keep on
hand to meet the demand for their products

STAGES OF
BUSINESS CYCLE
Minor or short business cycles- business
cycles generated by fluctuations in
inventories
Inventory cycles- usually last about two to
four years
Fluctuations in Government Spending
A major destabilizing force on several
occasions, especially during and after wars

STAGES OF
BUSINESS CYCLE
Politically Generated Business Cycle
Predicated on the belief that elected
officials have tendency to engineer
expansionary macroeconomic policies in
order to aid their re-election efforts
Monetary Policies
a key to managing business cycles and has
an important impact on consumer and
investor confidence

STAGES OF
BUSINESS CYCLE
Fluctuations in Exports and Imports
Net exports- difference between exports
and imports is the net foreign demand
for goods and services
- Component of aggregate demand in the
economy

KEYS TO SUCCESSFUL
BUSINESS CYCLE
MANAGEMENT

Flexibility
Long term planning
Attention to customers
Objectivity
Study

UNEMPLOYMENT(joblessness)
when people are without work or actively seeking
work
Types and Theories of Unemployment
Classical / real-wage unemployment- when real
wages for a job are set above market-clearing
level
Cyclical/ deficient-demand/ Keynesian
unemployment- when there is enough aggregate
demand in the economy to provide jobs for
everyone

 Structural unemployment- when a labor

market is unable to provide jobs for
everyone who wants because theres
mismatch between the skills of unemployed
workers and skills needed in available jobs
Technological unemployment- due to
replacement of workers by machine
Frictional or Search unemployment- time
period between jobs when a worker is
searching for, or transitioning from one job
to another

Underemployment
an employment situation thats insufficient in some
important way for the workers
Overqualification / over-education- employment of
workers with high education, skill levels, or
experience in jobs that dont require some abilities
Involuntary part-time- workers who could be
working for full work-week ca n only find part-time
work
Over-staffing or hidden unemployment- practice in
which business employ workers who arent fully
occupied

UNEMPLOYMENT RATE

Unemployment =

Unemployed workers
Total labor force 100

INFLATION
sustained increase in the general price
level of goods and services in an economy
over a period of time
too much money chasing too few goods
reflects a reduction in the purchasing
power per unit of money

Different Types of Inflation

Hyperinflation- when the prices skyrocket
more than 50%
Stagflation- when economic growth is
stagnant but there still is price inflation
Deflation- opposite of inflation- when
prices fall

CAUSES OF INFLATION
Demand-Pull Inflation- when aggregate
demand increases at a faster rate than
aggregate supply
Cost-Push Inflation- when there is an
increase in the cost of production for firms
causing aggregate supply to shift to the left
Wage-Push Inflation- rising wages tend to
cause inflation
Import Inflation- the prices will increase
solely due to this exchange rate effect

MEASURING INFLATION: 2
MAIN PRICE INDEXES
Consumer price Index (CPI)
measure of price changes in consumer goods
and services
Producer Price Index (PPI)
Measure the average the average change over
time in selling prices by domestic producers of
goods and services
Market basket- subset of products or securities
thats designed to mimic the performance of an
overall market

Thank you!