and Income Section 2: Population and Economic Growth Section 3: - - PowerPoint PPT Presentation

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

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In this section, you will learn how we measure the

• utput 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

• Items excluded from GDP

– Intermediate products – Secondhand sales – Nonmarket transactions – Underground economy

GDP—The Measure of National Output

(cont.)

Estimating Total Annual Output

• GDP must be adjusted for inflation.
• Constant prices in a base year are tracked

for this purpose.

GDP—The Measure of National Output

(cont.)

– Real GDP – Current GDP

Current GDP and Real GDP

• Economists calculate GDP per capita to

determine how the output of one country compares to another.

GDP—The Measure of National Output

(cont.)

Profiles in Economics: John Kenneth Galbraith

• GDP has limitations.

– GDP tells us nothing about composition

• f 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

• ur overall economic health.

GDP—The Measure of National Output

(cont.)

The Global Economy & YOU

• 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

• n total income rather than output.

– Net national product (NNP) – National income (NI) – Personal income (PI) – Disposable personal income (DPI)

GNP—The Measure of National Income

(cont.)

• Income generated by production flows to

businesses, government, and consumer sectors.

Economic Sectors and Circular Flows

(cont.)

Circular Flow of Economic Activity

• 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

Economic Sectors and Circular Flows

(cont.)

• The circular flow can be represented by

the output-expenditure model.

The Output—Expenditure Model (cont.)

– GDP = C + I + G + (X – M)

• 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

• ther investment goods.
• Government sector spends income on

national defense, income security, roads, etc.

• Foreign sector buys U.S. goods that make up
• ur GDP.
• Foreign sector purchases are called

net exports of goods and services.

The Output—Expenditure Model (cont.)

Population in the United States (cont.)

• Congress permanently established the

U.S. Census Bureau in 1902.

• Census data are presented in a number
• f ways:

– Urban population – Rural population – Household trends

– Regional changes

• Population shift is indicated by the center of

population.

Population in the United States (cont.)

– GDP per capita and GNP per capita for comparisons with other countries

Center of Population, 1790–2000

• 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

• n resources.
• Modest shifts in the population can cause

major infrastructure problems in the future.

Population in the United States (cont.)

Projected Population Trends

Fertility, life expectancy, and net immigration influence population trends.

• Political, community, and business leaders

are all interested in population trends. – Age and gender

Projected Population Trends (cont.)

Projected Distribution of the Population by Age and Gender, 2015

• Baby boom
• Population pyramid
• Dependency ratio

– Race and ethnicity – Population growth as determined by demographers

Projected Population Trends (cont.)

• Changes in fertility rates
• Life expectancy
• Immigration and net immigration

Projected Change in U.S. Population by Race and Ethnic Origin, 2000–2050

• 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.

Projected Population Trends (cont.)

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

• Economists are interested in how income

is distributed among households.

• Lorenz curve—shows how the actual

distribution of income varies from an equal distribution.

Poverty (cont.)

The Distribution of Income

• 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

Reasons for Income Inequality (cont.)

• Welfare programs designed to help

the needy – Income assistance – General assistance

Antipoverty Programs (cont.)

Poverty in the United States: Total Number and Rate

• Food stamps
• Medicaid

– Social service programs – Tax credits

Antipoverty Programs (cont.)

• Earned Income Tax Credit (EITC)

– Enterprise zones – Workfare programs – Negative income tax

• Economic growth by itself is not sufficient

to reduce poverty.

Antipoverty Programs (cont.)