World GDP Distribution
Low income group: 70 countries (middle Africa, most asian country). 36.9 percent of world pop. Produces 3 percent of world GDP.
Middle income group: 90 countries (China, South America, Eastern Europe). 47 percent of world pop. Produces 16.5 percent of world GDP.
High income group: 35 – 40 countries (U.S, Canada, Britan, Western Europe, Singapore). 15 percent of world’s pop. Produces 81.5 of world GDP.
Export numbers are generally lower than imports due to difficulties in tracking. Imports are easier to track as everything must go through customs.
Middle and low income countries have a competitive advantage in producing goods.
High income countries have a competitive advantage in services.
These two goals are in conflict during trade negotiations.
Since 9/11, direct foreign investment has fallen from 1.2 trillion worldwide to 572 billion. High income countries were investing over 850 billion in each other a year. It is currently 420 billion. This means that high income countries post 9/11 have decided to invest in their home country rather than investing abroad.
Low income country’s GDP is growing at a faster rate percentage wise, however they are falling behind in actual GDP numbers.
Macro Economic Trilogy (also called a country’s Internal Balance):
Unemployment rate (4.8 percent ideal unemployment rate
Inflation rate (CPI, Producer prices, GDP price deflator, etc) Ideally around 0 percent
GDP (Should be rising)
Definition of recession: When real GDP drops. (NOT: a fall in GDP for two consecutive quarters).
Quick forcast about what will happen to demand over the next two quarters:
GDP + Change in inventory = Final sales
Domestic absorbtion:
GDP – (exports – imports) = Domestic absorbtion
Intertemporal trade: trading present consumption for future consumption.
External Balance:
Balance of payments
Real GDP: GDP measured when prices have been held steady.
Unemployment: The ideal unemployment rate is about 4.8 percent.
Formulas
GDP=Consumption + Income + Goods + (Exports – imports)