FEEDBACK: When most people hear the word investment, they think of savings, stocks, or bonds. But in macroeconomics investment refers to private spending on tools, plant and equipment used to produce future output. It also includes the building of a new home. Investment also includes purchases by businesses that add to their own inventories, and also counts products that are produced but not sold in the specific year.

FEEDBACK: Per capita GDP allows us to compare the economic well-being across countries, but only during a particular year. Real GDP measures changes in output, adjusted for changes in prices over time. Countries with higher levels of real GDP from one time period to the next have grown economically. We therefore use real per capita GDP (real GDP divided by population) to see how economic well-being changes across countries over time.

FEEDBACK: GDP would increase as a result of these efforts, because the value of these unreported goods and services are currently not being calculated in GDP. For example, many babysitters do not report their income from babysitting jobs. If there were a way to include all the earned income from babysitters in the United States, GDP would increase.

Also, any work that is unpaid, such as a family member caring for an older relative or a stay-at-home mom cooking meals for her family, is not counted in GDP, even though something of value is being produced. Efforts to count these goods and services would also increase GDP.

FEEDBACK:

For 1967, we divide $1 trillion by 100, and then multiply by 100. Real GDP for 1967 is $10 billion
For 1977, we divide $2 trillion by 250, and then multiply by 100. Real GDP for 1977 is $8 billion. Comparing the 2 years, we can see that Real GDP has decreased.

FEEDBACK: GDP increases by the value of the finished vehicle which is $35,000. When you build the engine and sells it to the body shop. The mechanic has added a value of $7,000. Then ,the body shop installs the engine into the car, and sells it to the dealer. The shop has added a value of $13,0000($20,000-$7,000). When the car is sold to the consumer for $35,000, the value added by the dealer is $15,000. This $15,000 is the $35,000 sticker price minus the $20,000 value originally created by the mechanic and body shop. If we take these amounts and add them together, we get $7,000+$13,000+$15,000=$35,000. This is the same as the amount that GDP increased.

FEEDBACK: We can use Equation 6.3 to determine 2011 GDP in 2005 dollars.

FEEDBACK: Investment also includes all purchases by businesses that add to their inventories. For example, in preparation for the Christmas buying season, an electronics retailer will order more TVs, cameras, and computers. GDP rises when business inventories increase. GDP is calculated this way because we want to measure output in the period it is produced. Investment in inventory is just one more way that firms spend today to increase output in the future.

FEEDBACK: Since exports are produced in your country they are counted as production.  It doesn’t matter who buys them.  Imports are made elsewhere so you don’t count these as part of your country’s production.

FEEDBACK: GDP provides some insight into living standards. If GDP goes up, living standards tend to rise as well.

FEEDBACK: When considering macroeconomics you need to look at the big picture.  If a scenario deals with firms, towns, or individuals, then you are dealing with microeconomic subjects.  When you move to the national level, now you’re talking big.  Topics that impact or reflect a nation are macroeconomic. Some of these topics include GDP, unemployment, and the central bank changing interest rates. Microsoft buying another firm to expand social media presence would be considered a microeconomic scenario.

FEEDBACK: Paying a babysitter under the table, if included would actually boost GDP. Each of these transactions is either a used good—that is, produced in a prior year—or is an intermediate good. Therefore, their inclusion in GDP would overstate current GDP.

FEEDBACK: Illegal activities, transfer payments, and services that are produced but not sold are not counted in GDP.

Not all spending is counted in the calculation of GDP. This is because some types of spending do not represent production.  This is the case with transfer payments like social security and welfare.  Other things don’t get counted because they are difficult to keep track of, especially if they are conducted in the underground economy—like your purchase of a counterfeit designer purse.  Additionally, when you do something for yourself, rather than paying for it, this non-market activity does not count in GDP.