Popular in macroeconomics
Popular in Department
This 4 page Class Notes was uploaded by Danielle Notetaker on Monday January 11, 2016. The Class Notes belongs to Econ 202 at University of Oregon taught by Urbancic M in Spring2015. Since its upload, it has received 20 views.
Reviews for Econ 202
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 01/11/16
Measuring GDP 01/12/2016 ▯ The business cycle refers to the short-run fluctuations in economic activity that can cause output to be above or below the long-run trend. ▯ ▯ An expansion (or boom) is the period in the business cycle from a trough up to a peak, during which output and employment rise. A contraction (or recession, or slump) is the period in the business cycle from a peak down to a trough, during which output and employment fall. Note that as defined by economists a recession is not the period between a peak and the next time the economy returns to that previous peak level (which is often the typical public interpretation of the word). ▯ A recession is a period during which aggregate output declines. There is no pre-set way to determine when a recession has started. The general rule of thumb is that two consecutive quarters with decreasing GDP are typically considered to mark the beginning of a recession. ▯ A prolonged and deep recession is popularly known as a depression. There is no technical definition of a depression, and economists never use the term in any standard or rigorous way in any context. ▯ Gross domestic product (GDP) is… the total market value of all final goods and services… [i.e., intermediate goods or services don’t count] produced within a given period… [i.e., previously produced goods or services don’t count] by factors of production located within a country. [i.e., goods or services made elsewhere don’t count] [Transfers of money and assets that don’t involve theproduction of a good or service also don’t count.] ▯ ▯ Why does GDP count the “market value”? We can’t just count quantities. ▯ ▯ In 2010 the United States produced: 12 billion bushels of corn 8 million cars ▯ ▯ Just looking at quantity-produced numbers, cornseems more “important” to our GDP relative to cars. ▯ ▯ To add dissimilar things (like apples, oranges, corn,automobiles, legal services, and so forth) we measure the total market value of production. ▯ ▯ Quantity x Price =Market Value ▯ Corn 12 billion bushels x $5 = $60 billion ▯ Cars 8 million vehicles x $30,000 = $240 billion $300 billion ▯ ▯ Output Equals Income Using the total market value means that for the purposes of economists output and income are essentially synonymous. ▯ ▯ Output = GDP = Income ▯ ▯ Why Goods AND Services? ▯ Goods Tangibles Food, clothing, cars, houses ▯ Services Intangibles Health care, education, entertainment, travel, banking ▯ The composition of our industries and economy has greatly changed over the last 50 years; services are much more important than before. ▯ ▯ Intermediate goods are goods that firms repackage or bundle with other goods to be sold at a later stage. ▯ Examples of intermediate goods: Milk sold to a coffee shop Tires sold to a car manufacturer Drywall sold to a home builder ▯ Final goods are goods sold to the final users, or consumers. ▯ ▯ To get an accurate GDP estimate and avoid double counting final goods (and final services) are included in GDP but not intermediate goods (or intermediate services). ▯ we need to avoid double-counting. We don’t want to recount a good that was produced lastyear (or the year before, or many years ago). ▯ Examples: A used car (even it was built in the same year, since wedon’t want to double count it) A house that was built before the year in question ▯ ▯ For instance, purchases of stocks or bonds or land(and so on and so forth) do not count. ▯ However, the fees that pay for services involved in those transactions (like a broker’s fee or payments to a real-estate agent) do count, since these are new final services ▯ ▯ Gross national product (GNP) is the same as GDP except that: GNP includes goods and services produced abroad by domestically owned factors of production Example: the production of a Ford assembly plant in Brazil GNP excludes goods and services produced domestically by foreign- owned factors of production o Example: the production of a Toyota assembly plant in Mississippi ▯ Ownership of multinational companies is complicated. GDP only looks at where the production happens. We will only look at GDP data in this class—never GNP. ▯ ▯ 3 Methods for calculating GDP ▯ The expenditure approach computes GDP by measuring the total amount spent on all final goods during a given period. (We only use) ▯ The income approach computes GDP by measuring the income—wages, rents, interest, and profits—received by all factors of production in producing final goods. ▯ The value-added approach computes GDP by looking at the value added at each intermediate step of production. ▯ ▯ The Expenditure Approach: Categories The Bureau of Economic Analysis (BEA) is the U.S. government agency that tallies GDP data, a task is called national income accounting. ▯ GDP = C + I + G + NX ▯ C-Consumption ▯ I-Investment ▯ G-Government ▯ P-Purchases ▯ NX-Net Exports ▯ ▯ Consumption ▯ Personal consumption expenditures (C) are expenditures by consumers on the following: Durable goods: o Goods that last a relatively long time, such as cars or appliances. o Affected by cyclical fluctuations. Nondurable goods: o Goods that are used up fairly quickly, such as food or clothing. o (Not affected much by cyclical fluctuations.) ▯ Services: Economic activities that do not involve theproduction of physical things, such as legal services,medical services, or education. ▯ GDP is not the market value of total sales during a period—it is the market value of total production. Units produced but not sold are counted towards businesses inventories as part of the investment category. The relationship between total production and total sales is: GDP = final sales + change in business inventories ▯ ▯ ▯ ▯
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'