Macroeconomics ECON202
Guided notes
Chapter 6 Introduction to Macroeconomics and GDP
Big Questions to study
A. How is macroeconomics different from microeconomics?
Microeconomics is the study of individuals and firms, but macroeconomics considers the entire
economy. Many of the topics in both areas of study are the same; these topics include income,
employment, and output. But the macro perspective is much broader than the micro perspective.
Macroeconomics: the study of the economy of an entire nation or society
• The study of a broader economy; looks at the big picture created by all the markets in the economy
• Example: the markets for salmon, coffee, computers, cars, haircuts, healthcare, and so on
• Considering what happens when the national output of goods and services rises and falls, when overall
national employment levels rise and fall, and when the overall price level goes up and down
• Examining the total output in an economy instead of the output of a single firm or industry
• Looks at total employment across the economy instead of employment at a single firm
• Considers all prices in the economy rather than the price of just one product (i.e. the salmon example)
Microeconomics:
• Examines the decisions of firms and how they compete with other firms
• Example: studying markets of particular goods like salmon. You study the behavior of the consumers
of salmon and the firms that sell salmon. Then, you analyze the two together to see how the
equilibrium price depends on the behavior of the consumers and the firms.
1
,B. What does GDP tell us about the economy?
GDP measures both output and income in a macroeconomy. It is a cause of productivity and the
overall level of wealth in an economy. We use GDP data to measure living standards, economic growth,
and business cycle conditions.
• An economy producing more and more valuable output is healthy economy
• If out put falls for a certain period, there’s something wrong in the economy
• We measure national economic output because it gives us a good sense of the overall health of the
economy
• Example: When you get sick, you workout less, study less, output is overall less; the thermometer tells
us about our health like the GDP does for the health of the economy
C. How is GDP computed?
GDP is the total market value of all final goods and services produced in an economy in a
specific time period, usually a year. Economists typically compute GDP by adding four types of
expenditures in the economy: consumption (C), investment (I), government spending (G), and net
exports (NX). Net exports are total exports minus total imports. For many applications, it is also
necessary to compute real GDP, adjusting GDP for changes in price (inflation).
D. What are some shortcomings of GDP data?
GDP data do not include the production of non market goods the underground economy, production
effects on the environment, or the value placed on leisure time.
Flow of Chapter 6
Micro vs Macro
GDP:
- 3 uses of GDP
2
, - Detailed definition of GDP
- Computation of GDP
- Nominal GDP vs Real GDP
- Shortcomings of GDP
A. How is macroeconomics different from microeconomics?
Microeconomics: look at behavior of individual people, firms, and industries. Study of what people buy,
what jobs they take, and how they distribute their income between purchases and savings.
Macroeconomics: Study of the bigger, nationwide issues.
Microeconomics is about individuals, firms and industries
Macroeconomics is about the economy of an entire nation or society
Microeconomics vs Macroeconomics
Microeconomics: look at behavior of individual people, firms and industries. Study of individual-level
decisions.
Macroeconomics: Study of the economy-wide issues. Economy can be a city, a state, a country, or the
whole world.
Microeconomics is about individual
Macroeconomics is about aggregate (all together)
Comparing the perspectives of micro and macro
Topic Microeconomics Macroeconomics
The production of a single
Output worker, firm, or industry The production of an entire economy
The job status and decisions of The job status of a national population, particularly
Employment an individual or firm the number of people who are unemployed
3
, The price of one good (i.e. The combined prices of all goods (i.e. Consumer
Prices salmon) Price Index)
The income of a person or the The income of an entire nation or national
Income revenue of a firm economy
B. What does GDP tell us about the economy?
GDP: Gross Domestic Product
GDP measures
- the output of a country.
- the income of a country, that is, how rich or poor a country is.
• An economy producing more and more valuable output is a health economy VS. falling for a certain
period means there is something wrong in the economy
• We measure national economic output because it gives us a good sense of the overall health of the
economy
• Example: like a thermometer tells us if we have a fever or not, the GDP tells us if the nation is healthy
or not
Production Equals Income
• Output and income are essentially the same thing
• Nations and individuals that produce large amounts of highly valued output are relatively wealthy
• Nations and individuals that don’t produce much highly valued output are relatively poor
• Gross Domestic Product (GDP): the market value of all finals goods and services produced within a
nation during a specific period of time - usually a year
• GDP is the primary measure of a nation’s output and income
• Households spend to buy goods and services —> spending becomes income to supplier
households (in payment for their work and other resources)
• GDP is the sum of all the output form coffee shops, doctor’s offices, software firms, fast-food
restaurants, and all the other firms that produce goods and services within a nation’s borders
4
Guided notes
Chapter 6 Introduction to Macroeconomics and GDP
Big Questions to study
A. How is macroeconomics different from microeconomics?
Microeconomics is the study of individuals and firms, but macroeconomics considers the entire
economy. Many of the topics in both areas of study are the same; these topics include income,
employment, and output. But the macro perspective is much broader than the micro perspective.
Macroeconomics: the study of the economy of an entire nation or society
• The study of a broader economy; looks at the big picture created by all the markets in the economy
• Example: the markets for salmon, coffee, computers, cars, haircuts, healthcare, and so on
• Considering what happens when the national output of goods and services rises and falls, when overall
national employment levels rise and fall, and when the overall price level goes up and down
• Examining the total output in an economy instead of the output of a single firm or industry
• Looks at total employment across the economy instead of employment at a single firm
• Considers all prices in the economy rather than the price of just one product (i.e. the salmon example)
Microeconomics:
• Examines the decisions of firms and how they compete with other firms
• Example: studying markets of particular goods like salmon. You study the behavior of the consumers
of salmon and the firms that sell salmon. Then, you analyze the two together to see how the
equilibrium price depends on the behavior of the consumers and the firms.
1
,B. What does GDP tell us about the economy?
GDP measures both output and income in a macroeconomy. It is a cause of productivity and the
overall level of wealth in an economy. We use GDP data to measure living standards, economic growth,
and business cycle conditions.
• An economy producing more and more valuable output is healthy economy
• If out put falls for a certain period, there’s something wrong in the economy
• We measure national economic output because it gives us a good sense of the overall health of the
economy
• Example: When you get sick, you workout less, study less, output is overall less; the thermometer tells
us about our health like the GDP does for the health of the economy
C. How is GDP computed?
GDP is the total market value of all final goods and services produced in an economy in a
specific time period, usually a year. Economists typically compute GDP by adding four types of
expenditures in the economy: consumption (C), investment (I), government spending (G), and net
exports (NX). Net exports are total exports minus total imports. For many applications, it is also
necessary to compute real GDP, adjusting GDP for changes in price (inflation).
D. What are some shortcomings of GDP data?
GDP data do not include the production of non market goods the underground economy, production
effects on the environment, or the value placed on leisure time.
Flow of Chapter 6
Micro vs Macro
GDP:
- 3 uses of GDP
2
, - Detailed definition of GDP
- Computation of GDP
- Nominal GDP vs Real GDP
- Shortcomings of GDP
A. How is macroeconomics different from microeconomics?
Microeconomics: look at behavior of individual people, firms, and industries. Study of what people buy,
what jobs they take, and how they distribute their income between purchases and savings.
Macroeconomics: Study of the bigger, nationwide issues.
Microeconomics is about individuals, firms and industries
Macroeconomics is about the economy of an entire nation or society
Microeconomics vs Macroeconomics
Microeconomics: look at behavior of individual people, firms and industries. Study of individual-level
decisions.
Macroeconomics: Study of the economy-wide issues. Economy can be a city, a state, a country, or the
whole world.
Microeconomics is about individual
Macroeconomics is about aggregate (all together)
Comparing the perspectives of micro and macro
Topic Microeconomics Macroeconomics
The production of a single
Output worker, firm, or industry The production of an entire economy
The job status and decisions of The job status of a national population, particularly
Employment an individual or firm the number of people who are unemployed
3
, The price of one good (i.e. The combined prices of all goods (i.e. Consumer
Prices salmon) Price Index)
The income of a person or the The income of an entire nation or national
Income revenue of a firm economy
B. What does GDP tell us about the economy?
GDP: Gross Domestic Product
GDP measures
- the output of a country.
- the income of a country, that is, how rich or poor a country is.
• An economy producing more and more valuable output is a health economy VS. falling for a certain
period means there is something wrong in the economy
• We measure national economic output because it gives us a good sense of the overall health of the
economy
• Example: like a thermometer tells us if we have a fever or not, the GDP tells us if the nation is healthy
or not
Production Equals Income
• Output and income are essentially the same thing
• Nations and individuals that produce large amounts of highly valued output are relatively wealthy
• Nations and individuals that don’t produce much highly valued output are relatively poor
• Gross Domestic Product (GDP): the market value of all finals goods and services produced within a
nation during a specific period of time - usually a year
• GDP is the primary measure of a nation’s output and income
• Households spend to buy goods and services —> spending becomes income to supplier
households (in payment for their work and other resources)
• GDP is the sum of all the output form coffee shops, doctor’s offices, software firms, fast-food
restaurants, and all the other firms that produce goods and services within a nation’s borders
4
