A piece of economic data (statistic) indicates the direction of an economy.
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Transcript of A piece of economic data (statistic) indicates the direction of an economy.
ECONOMIC INDICATORSTo demonstrate awareness of key
macroeconomic indicators
DEFINITION
A piece of economic data (statistic) indicates the direction of an economy.
USES:
used by investors to understand present or future investment possibilities
Used by economists to judge the overall health of an economy.
EXAMPLES
Inflation rate (CPI) Production activity (GDP) Unemployment figures Standards of living (HDI)
KEY MACRO ECONOMIC INDICATORS
GDP GNP NNP HDI CPI (inflation) Unemployment Trade position
Gross Domestic Product
the total value of goods and services produced in a country during one year.
GR
OS
S D
OM
ES
TIC
PR
OD
UC
T
So what does this
mean???
GDP
C =Household Consumption
G =Government Spending
I = gross private investment
(X - M) = the net exports
GDP is a number that shows the worth (value)of the output of a country in local currency
GDP = C + G + I + (X - M)
Some Notes on GDP
It measures the value of economic activity within a country in one year..
It helps investors and economists understand business cycles
so
UNDERSTANDING GDP
NOMINAL GDP
REAL GDP
GDP PER CAPITA
What is the
difference?
NOMINAL GDP REAL GDP GDP PER CAPITA
Nominal GDP is the market value (money-value) of all final goods and services produced in a geographical region, usually a country
Real GDP is a measure of the value of output economy, adjusted for price changes (it takes into account inflation)
GDP per capita = GDP per person ….. __GDP___ population = the amount of GDP that each individual gets
GDPPURPOSE: (Why is it important)?
• It gauges the health of the economy• It indicates economic growth• WHEN GDP is HIGH• >>> HIGHER PRODUCTION LEVELS >>> LOW UNEMPLOYMENT >>> HIGHER WAGES (Demand for labour is high) >>> GREATER SPENDING
Gross National Product
An economic statistic that includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy ...
GNP = C + G + I + NX +NFP
The difference between GDP and GNP
GNP is the sum value of all goods and services
produced by permanent residents of a country
regardless of their location
SO it means ….
GNP means the total of all business production and service sector industry in a country plus its gain on overseas investment.
DIF
FER
EN
CE B
ETW
EEN
G
DP
AN
D G
NP
GD
PG
NP
Measuring all income earned within a country, or by measuring all expenditures within the country
Read more: http://www.investorwords.com#ixzz3E6xk9h18
GDP, plus income from foreign sources, less income paid to foreign citizens and entities
Read more: http://www.investorwords.com#ixzz3E6xuyviq
WHY is it IIMPORTANT?
It measures both the size and direction of economic activity (growth, stagnation or contraction)
Shows the relative strength of the nations economy compared to that of other nations
NNP Net National Product
What it is:
Net National Product (NNP) is the market value of a nation's goods and services minus depreciation (often referred to as capital consumption).
NNP = Gross National Product – Depreciation
Depreciation measures the amount of GNP that must be spent on new capital goods to
maintain the existing physical stock.
FORMULA
DEPRECIATION …Consumption of
fixed capital
CAPITAL CONSUMPTION ALLOWANCE
• amount of depreciation included in the Gross Domestic Product (GDP).
• • normally around 11% of GDP.
• * This amount is subtracted from GDP, (it is "used up“ during the year.
SO…
This amount is subtracted from GDP. WHY?• it is needed to
maintain the productive capacity of the economy
Productive capacity is maximu
m output
WHY it matters…
NNP is a measure of how much a country can consume in a given period.
the total value of a nation's annual output of goods and services minus the value of capital goods used up in the production of this output
HUMAN DEVELOPMENT INDEX (HDI)
to measure and rank countries' levels of social and economic development
based on four criteria- life expectancy, - education, and - income- standard of living
HDITHE HDI MAKES IT POSSIBLE TO:• track changes in development levels
over time and • compare development levels in
different countries.
Why is it importan
t ?
A COMPARISON
Why do many countries with a high gross domestic product end up with human development index ratings lower than other developed nations with lower GDPs?
1. It's difficult to balance spending on things that increase HDI while being an international GDP leader.
2. The pursuit of wealth affects HDI negatively.
3. It's very difficult for any people or government to achieve gains in all areas of life.
CONSUMER PRICE INDEX (CPI)
A measure of changes in the purchasing-power of a currency and the rate of inflation.
CPI measures:1) price changes 2) cost of living
changes.
USED BY:
Government Business Labour Private citizens
USES
Used to measure inflation Guides the president when making
economic decisions
Shows the effectiveness of government policy
Shows trends to help formulate future fiscal and monetary policy
CPI CPI is used to
calculate the actual inflation rate,,, HOW?
CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.
CPI FORMULA
CPI = Current year Price --------------------------- x100 Base year price
INFLATION = CPI current year – CPI previous year
--------------------------------------------------- X 100 CPI previous year
What does it mean?
It tells us how much cost of living has risen due to price changes
What does this show?
CO
NS
UM
ER
PR
ICE IN
DEX
(CPI)
The consumer price index or CPI is a
more direct measure than per
capita GDP of the
standard of living in a country
GDP vs CPI ????
reflects prices of all goods and services produced within the country, whereas CPI reflects the prices of a representative basket of goods and services purchased by the consumer
The CPI measures changes in prices over time while the GDP measures changes in production.
UNEMPLOYMENT RATE
is a measure of the percentage of unemployed workers in the workforce.
VOCABULARY
Choose 5 economic indicators from the word pic and explain what they mean.