Chapter Introduction Section 1: Measuring the Nation’s Output and Income Section 2: Population and Economic Growth Section 3: Poverty and the Distribution of Income Visual Summary
Section Preview In this section, you will learn how we measure the output and income of a nation.
Measuring the Nation’s Output and Income • Macroeconomics deals with the economy as a whole in determining a nation’s growth rate. • GDP is one of the most important macro measures.
GDP — The Measure of National Output (cont.) • Gross domestic product ( GDP) — measures final output each year; is estimated every three months and revised after that. Estimating Total Annual Output
GDP — The Measure of National Output (cont.) • Items excluded from GDP – Intermediate products – Secondhand sales – Nonmarket transactions – Underground economy Estimating Total Annual Output
GDP — The Measure of National Output (cont.) • GDP must be adjusted for inflation. • Constant prices in a base year are tracked for this purpose. – Real GDP – Current GDP Current GDP and Real GDP
GDP — The Measure of National Output (cont.) • Economists calculate GDP per capita to determine how the output of one country compares to another. Profiles in Economics: John Kenneth Galbraith
GDP — The Measure of National Output (cont.) • GDP has limitations. – GDP tells us nothing about composition of output. – GDP tells little about the impact of production on quality of life. – Some GDP is produced to control activities with little utility.
GDP — The Measure of National Output (cont.) • GDP is a measure of voluntary transactions and therefore an indicator of our overall economic health. The Global Economy & YOU
GNP — The Measure of National Income (cont.) • GDP has two sides. – Represents output – Represents equal amount of income
GNP — The Measure of National Income (cont.) • Measures of national income – Gross national product (GNP) focuses on total income rather than output. – Net national product (NNP) – National income (NI) – Personal income (PI) – Disposable personal income (DPI)
Economic Sectors and Circular Flows (cont.) • Income generated by production flows to businesses, government, and consumer sectors. Circular Flow of Economic Activity
Economic Sectors and Circular Flows (cont.) • The largest sector in the economy is the household or consumer. – Unrelated individual – Family
Economic Sectors and Circular Flows (cont.) • Business or investment sector – Proprietorships, partnerships, and corporations
Economic Sectors and Circular Flows (cont.) • Government or public sector • Foreign sector
The Output — Expenditure Model (cont.) • The circular flow can be represented by the output-expenditure model . – GDP = C + I + G + (X – M)
The Output — Expenditure Model (cont.) • Consumers spend income on goods and services used by households. • Income that is not spent appears as personal saving and is borrowed by the business and government sectors.
The Output — Expenditure Model (cont.) • Investment sector spends income on labor, factories, equipment, inventories, and other investment goods. • Government sector spends income on national defense, income security, roads, etc. • Foreign sector buys U.S. goods that make up our GDP. • Foreign sector purchases are called net exports of goods and services .
Population in the United States (cont.) • Congress permanently established the U.S. Census Bureau in 1902. • Census data are presented in a number of ways: – Urban population – Rural population – Household trends
Population in the United States (cont.) – Regional changes • Population shift is indicated by the center of population . – GDP per capita and GNP per capita for comparisons with other countries Center of Population, 1790 – 2000
Population in the United States (cont.) • If population grows faster than its output, a country could end up with more mouths than it can feed. • If population grows too slowly, there may not be enough workers to sustain economic growth with increased demand on resources. • Modest shifts in the population can cause major infrastructure problems in the future.
Projected Population Trends Fertility, life expectancy, and net immigration influence population trends.
Projected Population Trends (cont.) • Political, community, and business leaders are all interested in population trends. – Age and gender • Baby boom • Population pyramid • Dependency ratio Projected Distribution of the Population by Age and Gender, 2015
Projected Population Trends (cont.) – Race and ethnicity – Population growth as determined by demographers • Changes in fertility rates • Life expectancy • Immigration and net immigration Projected Change in U.S. Population by Race and Ethnic Origin, 2000 – 2050
Projected Population Trends (cont.) • Demographics examined here point to a population that is likely to grow more slowly in the future. • Increases in productivity can offset the negative effects of a declining population growth. • A larger concern is age composition — as the population matures, there is a greater demand for health-care related products and services along with retirement funds.
Poverty (cont.) • Individuals classified as living in poverty have incomes that fall below the poverty threshold . • Simplified poverty thresholds appear as poverty guidelines and are used to determine eligibility for federal programs. Poverty Guidelines
Poverty (cont.) • Economists are interested in how income is distributed among households. • Lorenz curve — shows how the actual distribution of income varies from an equal distribution. The Distribution of Income
Reasons for Income Inequality (cont.) • Reasons for varied income – Education – Wealth – Tax law changes – Decline of unions
Reasons for Income Inequality (cont.) – More service jobs – Monopoly power – Discrimination – Changing family structure
Antipoverty Programs (cont.) • Welfare programs designed to help the needy – Income assistance – General assistance • Food stamps • Medicaid Poverty in the United States: Total Number and Rate
Antipoverty Programs (cont.) – Social service programs – Tax credits • Earned Income Tax Credit (EITC) – Enterprise zones – Workfare programs – Negative income tax
Antipoverty Programs (cont.) • Economic growth by itself is not sufficient to reduce poverty.
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