Ec102 may 16
1 like648 views
This document provides an introduction to macroeconomics concepts including gross domestic product (GDP), inflation, price indices, and economic growth rates. It defines GDP as the total market value of final goods and services produced within a country in a given period. Several methods for measuring GDP are presented, including the expenditure and income approaches. The effects of taxes on consumer surplus, producer surplus, and deadweight loss are also summarized using supply and demand diagrams.
More Related Content
Ec102 may 16
- 1. INTRODUCTION TO MACROECONOMICSMay 16, 2011
- 2. QUIZ1. What were the 4 changes with EVAT? 2. If a firm pays a tax Php2 per bottle of alcohol it sells, what kind of tax is levied on the alcohol?3. Difference bet. amount buyers are willing to pay for the good and amount they actually pay for it
- 3. QUIZ4. Before tax producer surplus?5. Deadweight loss?BONUS:
- 4. EFFECTS OF A TAXConsumer surplus – amount buyers are willing to pay for the good and amount they actually pay for itProducer Surplus – Amount sellers receive for a good minus their costsConsumer+Producer surplus measures the welfare in society
- 5. No tax consumer surplus: A+B+CNo tax producer surplus: D+E+F
- 6. EFFECTS OF A TAXAfter tax, total welfare is now divided intoConsumer Surplus and Producer SurplusGov’t Tax Revenue (TQ)Deadweight Loss – fall in total surplus that results from a market distortion such as a tax
- 7. SupplySize of taxPrice buyerspayPricewithout taxPrice sellersreceiveDemandQuantityQuantitywithout taxwith taxBuyers’ PriceSellers’ priceQuantity0
- 9. EFFECTS OF A TAXIncentive for consumers to buy lessIncentive for producers to produce lessBoth are worse offMarket is below optimum
- 10. EFFECTS OF A TAX
- 11. DETERMINANT OF DWLPrice elasticities of supply and demandThe greater the elasticities of demand and supply the larger the decline in equilibrium quantity and, the greater the deadweight loss of a tax
- 12. SupplyWhen supply isrelatively inelastic,the deadweight lossof a tax is small.Size of taxDemandINELASTIC SUPPLY Price0Quantity
- 13. When supply is relativelyelastic, the deadweightloss of a tax is large.SupplySizeoftaxDemandELASTIC SUPPLY PriceQuantity0
- 14. SupplySize of taxWhen demand isrelatively inelastic,the deadweight lossof a tax is small.DemandINELASTIC DEMANDPriceQuantity0
- 15. SupplySizeoftaxDemandWhen demand is relativelyelastic, the deadweightloss of a tax is large.ELASTIC DEMANDPriceQuantity0
- 16. DEADWEIGHT LOSS AND TAX REVENUE AS TAXES VARYWith each increase in the tax rate, the deadweight loss of the tax rises even more rapidly than the size of the tax.
- 17. DeadweightlossSupplyPBTax revenuePSDemandQ1Q2SMALL TAXPriceQuantity0Copyright © 2004 South-Western
- 18. DeadweightlossPBSupplyTax revenuePSDemandQ2Q1MEDIUM TAXPriceWhen the tax rate doubles, the deadweight loss quadruplesQuantity0
- 20. 20DEADWEIGHT LOSS AND TAX REVENUE AS TAXES VARYTax revenue = tax rate × quantity bought and soldTR = T × QT↑ causes Q↓Therefore, the effect of T↑ on TR is ambiguousT↑ causes TR↑ when the tax rate (T) is lowT↑ causes TR↓ when the tax rate (T) is highThis gives us the Laffer Curve
- 21. T1LAFFER CURVENote that it makes no sense at all to make the tax size bigger than T1.TaxRevenueTax Size0
- 22. IMPROVING TAX COMPLIANCETax Evasion – illegal means to avoid paying taxesUnderdeclaration of salesOverdeclaration of claims for input VATMisdeclaration of incomeTax Avoidance – legal means to avoid paying taxes
- 23. MACROECONOMICSStudy of Economics in the aggregate levelAggregate add up everythingP – general price levelQ – National output (Y)π – inflation (change in P)AS and AD
- 24. NATIONAL INCOME ACCOUNTINGGross Domestic ProductGross National ProductNet Domestic Product
- 25. GROSS DOMESTIC PRODUCTMarket value of all final goods and services produced in the country within a given period of timeMeasures the size of the economy and amount of economic activity
- 26. GROSS DOMESTIC PRODUCTMarket value of all final goods and services produced in the country within a given period of timeGDP as a single measure of economic activityGoods are monetized multiplied to price to be comparableComparable across countries
- 27. GROSS DOMESTIC PRODUCTMarket value of all final goods and services produced in the country within a given period of timeGawaDitosaPilipinasEVERYTHING PRODUCED Excludes illegal, black market
- 28. GROSS DOMESTIC PRODUCTIf not paid for, not counted (accounting)Cash-in-hand payments not includedExamples:You made your own cabinetPayment to grocery boys
- 29. GROSS DOMESTIC PRODUCTMarket value of all final goods and services produced in the country within a given period of timeIntermediate goods – inputs are not includedIf not used immediately and stored for future use, then it is included as inventory
- 30. GROSS DOMESTIC PRODUCTMarket value of all final goods and services produced in the country within a given period of timeGoods – tangible productsServices – intangibleEx: Nail polish and manicure service
- 31. GROSS DOMESTIC PRODUCTMarket value of all final goods and services produced in the country within a given period of timeCurrently producedUsed items, second-hand items are not included
- 32. GROSS DOMESTIC PRODUCTMarket value of all final goods and services produced in the country within a given period of timeSpatial limitAs long as produced in the Philippines, counted in GDP
- 33. GROSS DOMESTIC PRODUCTMarket value of all final goods and services producedin the country within a given period of timeTime limitAnnualQuarterly
- 34. EXAMPLE1M loaves of bread (P2 each)1.2M kg of flour (P10 per kg)100,000 kg each of yeast, sugar and salt (all sold at P10 per kg)The flour, yeast, sugar and salt are sold only to bakers who use them exclusively for the purpose of making bread. What is the value output of this economy?
- 35. GDP per capitaGDP/N Measure of standard of livingExampleGDP = P100MRich = P80M (10M people)Poor = P20 M (90M people)GDP/N = P100M/100M = P1/person
- 36. GROSS NATIONAL PRODUCTGDP + factor payments from abroad paid to domestically owned factors of production (Net Factor Income)NFI = income remitted in – income remitted outGawa Ng Pilipino
- 37. NET DOMESTIC PRODUCTGDP – depreciationValue of production minus value of amount of capital used up in producing that outputBest measure but impossible to compute
- 38. GDP MEASUREMENTExpenditure ApproachOutgoingHow we use products we produceIncome approachIncomingIncome must equal expenditure
- 39. EXPENDITURE APPROACHY = C + I + G +X – MC = consumption/expenditure (HH)I = investmentCapital formation (Change in stock capital)IT = KT+1 –KTG = gov’t expenditureX-M = net export
- 40. EXPENDITURE APPROACHConsumption – spending on anythingGovernment – purchase of goods and servicesInvestment – addition to stock of capitalNot buying of stocks or bondsPhysical Capital, Human CapitalAnything that would increase productionGross investment
- 41. EXPENDITURE APPROACHNet ExportsDomestic spending on foreign goods (M) and foreign spending on domestic goods (X)Exports – addition to our demandImport – subtraction from demand
- 42. INCOME APPROACHY = C + S + TC = consumptionS = savingsT = tax
- 43. GDP GROWTH RATE GDP Growth Rate
- 44. NOMINAL GDPMeasured in current prices
- 45. NOMINAL GDPNominal GDP Growth RateIf GDP increases, not specific whether it’s an increase in production or inflation
- 46. REAL GDPMeasured using constant prices (base year)
- 47. REAL GDPREAL GDP Growth RateSince prices are constant, growth rate reflects an increase in production
- 48. INFLATIONRate of change of PPrice Level – cumulation of past inflations
- 49. MEASURES OF PRICE LEVELGDP Deflator (GDPd)Consumer Price IndexProducer Price IndexChain-weighted GDP
- 50. GDP DEFLATORChange in prices that has occurred between the base year and current year
- 51. GDP DEFLATORWhat was worth P100 in 2007 is worth P109 in 2008In 2008, if you want to buy the same goods and services, you need to pay P109. Back in 2007, you only paid P100 for it.
- 52. GDP DEFLATORRate of change of GDPd
- 53. CONSUMER PRICE INDEXCost of buying a fixed basket of goods
- 56. GDPd vs. CPIGDPd includes all that is producedCPI only includes those consumed by the average consumerGDP better measure for forecastingCPI better measure of standard of living (Dev Eco)
- 57. GDPd vs. CPIGDPd differs from year to yearCPI has same basket of goodsGDPd does not reflect price of importsCPI reflects price of important imports
- 58. GDPd vs. CPIGDPd increases at a slower paceCPI more reactive to changes in priceProducer Price IndexSame as CPI but basket of goods for producers