1. MEASURING ECONOMIC PERFORMANCE ECONOMICS Mr. Redelsheimer Redelsheimer's PowerPoints Inc.

3. Redelsheimer's PowerPoints Inc. Average Starting Salaries of new MBA grads SCHOOL 2000 STARTING SALARY 2002 STARTING SALARY 2004 STARTING SALARY STANFORD $165,000 HARVARD $160,000 U OF PENN $156,000 COLUMBIA $142,000 DARTMOUTH $149,000

4. In the year 2002, graduation was not the happy occasion many had expected  a golden ticket to a well paying job and success. Redelsheimer's PowerPoints Inc. Even at top business schools in 2002, many students and faculty watched in disbelief as recruiters reneged on job offers that had already been extended to hundreds of newly graduated MBA’s. This alteration between boom and bust is know as the BUSINESS CYCLE

5. Redelsheimer's PowerPoints Inc. Average Starting Salaries of new MBA grads SCHOOL 2000 STARTING SALARY 2002 STARTING SALARY 2004 STARTING SALARY STANFORD $165,000 $138,100 $150,000 HARVARD $160,000 $134,000 $147,000 U OF PENN $156,000 $124,000 $144,000 COLUMBIA $142,000 $123,000 $142,000 DARTMOUTH $149,000 $122,000 $135,000

6. Redelsheimer's PowerPoints Inc. Did you know … the average salary for a Stanford MBA in the class of 1968 was only $12,000 … the US Economy has doubled in size since 1968? In other words, we have twice as much stuff as in 1970. … the graduates of 2002, even though facing disappointing job prospects and a lower salary, would have had an enormously higher standard of living than a comparable grad in 1968.

7. Redelsheimer's PowerPoints Inc. MACROECONOMICS Why is there a business cycle, and can anything be done to smooth it out? That’s one question addressed by Macroeconomics , the area of economics that focuses on the behavior of the economy as a whole.

8. How do we know how the United States Economy is doing? Redelsheimer's PowerPoints Inc.

9. You will become “ Doctors of the Economy ” Redelsheimer's PowerPoints Inc. [The economy is the patient suffering from “inflation” or “unemployment.” ] Diagnosis Prognosis Treatment ACL has torn Repair the ACL R ehab on crutches

10. Redelsheimer's PowerPoints Inc. G D P ROSS OMESTIC RODUCT

17. Redelsheimer's PowerPoints Inc. Counted in GDP NOT counted in GDP FINAL GOODS INTERMEDIATE GOODS Bread Flour used for making bread Cruise Missile Screw on the Missile New Auto Window glass in a new auto Cheese Pizza Cheese to be put on Pizza

18. Redelsheimer's PowerPoints Inc. 1. Intermediate Goods – components of the final good. A. Ford buys batteries or tires for its cars. B. KFC buys chickens to eventually sell to customers.

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27. Redelsheimer's PowerPoints Inc. McDonalds opens a restaurant in China. Are the hamburgers they sell counted in the United States’ or China’s GDP? Answer: China’s GDP

28. US vs. World’s GDP (2006 data) Redelsheimer's PowerPoints Inc. Country Percentage of Global GDP United States 29% Japan 8% Germany 6.0% China 5% UK 4.7% France 3% Italy 2.5%

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32. Redelsheimer's PowerPoints Inc. GDP UP EQUALS UMEMPLOYMENT RATE DOWN

34. Unreported “Legal” business Activity Redelsheimer's PowerPoints Inc. Unreported “legal” business activity does not count. This is two-thirds of the “underground economy.” What if an eye surgeon doesn’t report $500 of his his $3,400 LASIK bill? And what if this waitress doesn’t report all tips ? And what if the dentist doesn’t report $400 for teeth whitening ?

35. Redelsheimer's PowerPoints Inc. 0 5 10 15 20 25 30 Greece Italy Spain Portugal Belgium Sweden Germany France Holland United Kingdom Japan United States Switzerland GLOBAL PERSPECTIVE The Underground Economy as a Percent of GDP

36. WHAT IS NOT COUNTED IN GDP? Redelsheimer's PowerPoints Inc. 2. Sale of used items. If sold, the Mona Lisa would not be counted in France’s GDP.

37. Redelsheimer's PowerPoints Inc. Chevy - what is not counted Second Hand Sales – no current production . A. If a 1957 Chevy is bought in 2005 [It has not been produced again so would not count.] The salesman is doing productive work. His commission would count . B. Boots produced in 1980 are bought in a Thrift Store in 05. They also have not been produced again . Salesman’s commission would count . You are buying his services.

41. Non-market Transactions Are Not Counted Redelsheimer's PowerPoints Inc. Work in your own household or volunteer work in the community does not count because there was no payment. So, don’t marry your maid, gardener, or fitness instructor , or you will hurt GDP.

42. Does Her Work Count? Redelsheimer's PowerPoints Inc. It depends on whether she is the maid or housewife.

45. – what is not counted Redelsheimer's PowerPoints Inc. Purely Financial Transactions – stocks, bonds, CDs. There is no current production . A. If 100 shares of Dell stock is bought I’m going to buy 100 shares of Google Stock. Exchanging one financial asset for another

46. – what is not counted . Redelsheimer's PowerPoints Inc. . Transfer Payment s – welfare, unemployment, social security . [There is no contribution to final production]

50. Redelsheimer's PowerPoints Inc. G overnment P urchases (G) [state, local & federal] Personal Consumption Expenditure ( C ) Gross Private Domestic Investment ( I g ) EXPENDITURES APPROACH

51. Redelsheimer's PowerPoints Inc. Government Purchases ( G ) Net Exports( X n ) Personal Consumption Expenditure ( C ) Gross Private Domestic Investment ( I g ) EXPENDITURES APPROACH Net Exports ( X n ) = Exports ( X ) – Imports ( N ) [M represents production outside a country]

52. Redelsheimer's PowerPoints Inc. We have 30% of the world’s GDP, 25% of global trade, 40% of world stock market capitalization, and nearly 50% of the world’s largest companies. Our GDP is greater than the next five countries combined.

53. Per Capita GDP – 2005 [Selected Countries] Redelsheimer's PowerPoints Inc. Country Per C apita Country Per C apita L uxembourg 53,958 U.S. $42,300 United Kingdom $24,700 S witzerland 31,100 Sweden 24,700 Norway 30,800 Italy 24,300 Denmark 29,800 Australia 24,000 Canada 29,700 New Zealand 19,500 Japan 29,200 Spain 18,900 Austria 27,000 Greece 17,900 Germany 27,000 Argentina 12,000 Belgium 26,100 Hungary 12,000 France 25,400 Mexico 9,000

54. GDP Over The Decades Redelsheimer's PowerPoints Inc. 11 tril. 10 tril. 9 tril. 8 tril. 7 tril. 6 tril. 5 tril. 4 tril. 3 tril. 2 tril. 1 tril. 0 1929 1940 1950 1960 1970 1980 1990 2005 GDP Per Capita $ 42,000

55. Redelsheimer's PowerPoints Inc. T he Poorest Nation s Nation Per Capita 1. Afghanistan $125 2. Sierra Leone $510 3. Ethiopia $600 4. Somalia $600 5. Congo $600 6. Eritrea $710 7. Tanzania $710 8. Burundi $720 9. Rwanda $900 10. Malawi $900 11. Mozambique $1,000 Djibouti $1,300 The world’s have-nots There are 6 billion people on our planet; 5 billion are in the Third World . 2.5 billion live on less than $2 a day . The direst poverty is in Africa , home to most of the world’s 10 poorest countries . Over ½ the people of Sub-Sahara Africa live on less than $2 a day . 8 million people die each year because they are too poor to stay alive. $6,538 1929 $15,931 1967 $25,989 1996 $42,000 2005 GDP Per Capita [in 1992 dollars] ½ of the world’s population have yet to make their first phone call.

56. Non-market Transactions Leisure Improved Product Quality The Underground Economy GDP and the Environment Composition & Distribution of Output Per Capita Output SHORTCOMINGS OF GDP Redelsheimer's PowerPoints Inc.

57. GDP NS 1-10 Redelsheimer's PowerPoints Inc. 1. GDP is the monetary value of all final domestic goods/services produced (by/within) a nation in one year. 2. If net foreign factor income earned in the U.S. is positive , then (GDP/GNP) is larger. 3. Double counting can be avoided by counting only (intermediate/final) goods. 4. (Final/Intermediate) goods and services refer to products purchased by the ultimate users . 5. Transfer payments [when you take tax money from those who are working & give it to those who are not working] (do/do not) count in GDP because they (do/do not) reflect current production. 6. (The purchase of 100 shares of Google stock/ The purchase of a drill press) is not considered real investment . 7. If depreciation exceeds gross private domestic investment , it can be concluded that In is (positive/negative) & we have declining productive capacity. 8. Depreciation can be determined by (adding/subtracting) In from Ig. 9. The largest component of spending is (C/Ig/G/Xn) and the smallest is (C/Ig/G/Xn). 10. NDP is (GDP-indirect business taxes/GDP-Depreciation).