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1、四、 Investment Tools: Economics: Macroeconomic Analysis1.A: Preliminary Reading: Taking the Nations Economic Pulsea: Explain the two approaches to measuring gross domestic product (GDP) and calculate GDP using each approach.The expenditure approach is a demand-based concept measured by summing person
2、al consumption, gross private investment, government consumption and gross investment, and net exports of goods and services.Resource cost/income approach: The resource cost/income approach is a supply or production oriented approach and measures GDP by summing the following components employee comp
3、ensation, proprietors income, rents, corporate profits, interest income, indirect business taxes, depreciation, and net income of foreigners.b: Distinguish between GDP and gross national product (GNP).GNP is the total market value of all final goods and services produced by the citizens of a country
4、 no matter where they are residing. Prior to 1991 GNP was used to measure US production.GNP and GDP are closely related concepts. GDP is a measure of the output that is produced domestically, while GNP is a measure of the output produced by the nationals of a country regardless of where they live. G
5、NP is GDP PLUS income earned by citizens from their work and investments abroad, LESS the income earned by foreigners from their work and investments within the country.GDP measures output within the borders of a country regardless of the citizenship of the producer. GNP measures the output of the c
6、ountrys nationals regardless of where they live.c: Explain the difference between real and nominal GDP.An important use of GDP is to compare the level of production over time. However, when nominal GDP (GDP measured in terms of current prices) changes from one period to the next, it reflects both ch
7、anges in production and price changes. Therefore, economists attempt to filter out the impact of GDP by calculating GDP measured in terms of prices from some base year. This measure is called real GDP. Changes in real GDP correspond to real or actual changes in production. Since nominal GDP is measu
8、red with current prices and real GDP is measured relative to the price level in some base year, we need a price index to indicate the relative price change between periods.d: Distinguish between the GDP deflator and the consumer price index.The GDP Deflator is a general price index that corresponds
9、to the price change exhibited by a very large market basket - all final goods and services produced. An important point to note is that the market basket of goods changes every year depending on current production. In other words, the market basket is not fixed. The GDP Deflator is useful for measur
10、ing economy-wide inflation. The current base year is 1992.The Consumer Price Index (CPI) is different than the GDP deflator. First, a relatively small market basket (364 items) is used. Second, the market basket is fixed from year-to-year. Finally, the CPI measures consumer price changes and does no
11、t directly measure the price changes of items purchased by businesses and government.The net result of all these differences is very small. However, the CPI tends to overstate the inflation rate because its market basket is fixed and does not consider that consumers will substitute away from goods t
12、hat have risen dramatically in price . However, the CPI is useful for measuring inflation in the consumer goods sector.e: Calculate real GDP, using nominal GDP and the GDP deflator.Example: Nominal GDP was $2.5 billion in 1992 and $3.5 billion in 1998. If the GDP deflator was 100.0 in 1992 and 112.7
13、 in 1998, what is the change in real GDP over the period both in dollars and in percentage terms?Answer:1. Nominal GDP in 1992 = $2.5 billion. 2. 1998 GDP in 1992 dollars = $3.5 (100.0/112.7) = $3.1 billion. 3. Increase in dollars: $3.1 - 2.5 = $0.6 billion. Increase in percent: (3.1 - 2.5) = .24 or
14、 24%. Although nominal GDP rose by over 40% during the period, the real production of the economy only rose by 24%. Real GDP current period = nominal GDP current period x (GDP deflator base year / GDP deflator current period)f: Discuss the major limitations of GDP.Limitations with using GDP as a mea
15、sure of economic activity: 1. GDP does not count non-market production-specifically, homemaker services. 2. GDP does not count the underground economy-illegal activities and tax evasion. 3. GDP does not measure the value of leisure activities, the standard of living accounted for by a shorter workwe
16、ek, and changing working conditions. 4. GDP does not measure the changing quality of goods and services. 5. GDP does not measure the cost of pollution and damage to the ecology. g: Describe alternative measures of domestic output and income, including GDP, GNP, national income, personal income, and disposable income. Gross domestic product = the total market value of all final goods produced within a country. Gross national product = the total market value of all final go
