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Macroeconomic Notes Week 3

by: Kate Notetaker

Macroeconomic Notes Week 3 Econ 1012

Marketplace > George Washington University > Economcs > Econ 1012 > Macroeconomic Notes Week 3
Kate Notetaker
Dr. John Volpe

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About this Document

Notes for January 27.
Dr. John Volpe
Class Notes
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This 0 page Class Notes was uploaded by Kate Notetaker on Friday January 29, 2016. The Class Notes belongs to Econ 1012 at George Washington University taught by Dr. John Volpe in Spring 2016. Since its upload, it has received 27 views. For similar materials see Macroeconomics in Economcs at George Washington University.


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Date Created: 01/29/16
Macroeconomics Week 3 o A nal good or service is a good or service purchased by a nal user 0 These are what are used to calculate GDP If we counted intermediate goods and services as well then we would end up double counting Two main conceptual ways to measure the total economic activity in an economy 0 Total production and total income 0 When we measure one we are also measuring the other Households buy goods and services from rms in other countries 0 These are known as imports o Households elect not to spend some of their income and instead save it with nancial systems Like banks These nancial system rms lend money to other rms and the government 0 Firms sell goods and services to households in other countries 0 These are known as exports To measure GDP the BEA measures four major categories of expenditures 0 Personal Consumption Expenditures or quotConsumptionquot C 0 Gross Private Domestic Investment or Investment l 0 Government Purchases G 0 Net Exports NX o In 2013 the BEA started counting RampD as investment rather than an intermediate good 0 Emphasizes the importance of intellectual property 0 Money spend on development now gets counted as investment 0 Alternative method to measure GDP is to measure the value added 0 Value added the market value a rm adds to a product 0 Final selling price of a product must equal the sum of the values added to the product at each stage of production Shortcomings of GDP 0 Measure of total production Some things are not counted 0 Work in the home is not counted 0 Its usefulness as a measure of wellbeing o If we are comparing GDP from year to year 0 Size of household production and the underground economy is probably about the same from year to year GDP growth is a reasonable measure of the growth in total production However over long periods of time these shortcomings might be more serious Marginal Productivity Theory of Wages Real GDP vs nominal GDP 0 Since GDP is measured in quotvaluequot terms we might have problems interpreting changes over time if prices change To separate these effects the BEA calculates both nominal and real GDP 0 GDP De ator 0 Interested in the price level a measure of the average prices of goods and series in the economy Stable prices are desirable They allow households and rms to plan for the future 0 GDP De ator Measures the price level calculated by dividing nominal GDP by real GDP


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